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ZENITH LIFE
ZENITH LIFE ONE
ZENITH LIFE PLUS
ZENITH LIFE EXECUTIVE 65
ZENITH SURVIVORSHIP LIFE
ZENITH FLEXIBLE LIFE
Supplement dated November 13, 1995
to Prospectus dated May 1, 1995
New England Variable Life Insurance Company (the "Company") is a wholly-owned
subsidiary of New England Mutual Life Insurance Company ("The New England").
The New England and Metropolitan Life Insurance Company ("MetLife") have
entered into an agreement to merge, with MetLife to be the survivor of the
merger. The merger is conditioned upon, among other things, approval by the
policyholders of The New England and MetLife and receipt of certain regulatory
approvals. The merger is not expected to occur until after December 31, 1995.
If the merger is consummated, the Company will become a direct or indirect
wholly-owned subsidiary of MetLife. The Company is not expected to be affected
by the merger except to the extent that assets of The New England may be
transferred to the Company in connection with consummation of the merger.
ZENITH FLEXIBLE LIFE
Under "Toll-Free Numbers" on page A-44, the correct toll-free number for sub-
account transfers or premium reallocations is 1-800-200-2214.
NEW ENGLAND ZENITH FUND
Supplement dated November 13, 1995 to
Prospectus dated May 1, 1995
BACK BAY ADVISORS MONEY MARKET SERIES WESTPEAK VALUE GROWTH SERIES
BACK BAY ADVISORS BOND INCOME SERIES WESTPEAK STOCK INDEX SERIES
BACK BAY ADVISORS MANAGED SERIES DRAYCOTT INTERNATIONAL EQUITY SERIES
LOOMIS SAYLES AVANTI GROWTH SERIES ALGER EQUITY GROWTH SERIES
LOOMIS SAYLES SMALL CAP SERIES VENTURE VALUE SERIES
LOOMIS SAYLES BALANCED SERIES CAPITAL GROWTH SERIES
New England Mutual Life Insurance Company ("The New England") and
Metropolitan Life Insurance Company ("MetLife") have entered into an agreement
to merge, with MetLife to be the survivor of the merger. The merger is
conditioned upon, among other things, approval by the policyholders of The New
England and MetLife and receipt of certain regulatory approvals. The merger is
not expected to occur until after December 31, 1995.
TNE Advisers, Inc. ("TNE Advisers"), investment adviser to each Series of New
England Zenith Fund (the "Fund") except the Capital Growth Series, is a wholly-
owned subsidiary of The New England. The New England owns the sole general
partner of New England Investment Companies, L.P. ("NEIC") and a majority of
the limited partnership interest in NEIC. NEIC is the owner of a majority
limited partnership interest in the Capital Growth Series' investment adviser,
Capital Growth Management Limited Partnership. Also, the subadvisers of nine
Series of the Fund are currently wholly-owned subsidiaries of NEIC. These
subadvisers are Back Bay Advisors, L.P., Loomis Sayles & Company, L.P.,
Westpeak Investment Advisors, L.P. and Draycott Partners, Ltd. The subadvisers
of the remaining two Series offered through this prospectus are not affiliated
with The New England or NEIC.
VL-101-95
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The merger of The New England into MetLife is being treated, for purposes of
the Investment Company Act of 1940 (the "Act"), as an "assignment" of the
existing advisory agreements for each Series and of the subadvisory agreements
of the nine Series that have NEIC subsidiaries as subadvisers. Under the Act,
such an "assignment" will result in an automatic termination of these
agreements. The subadvisory agreements for the other two Series terminate
automatically, by their terms, upon any termination of TNE Advisers' advisory
agreement with the Fund. Thus, those subadvisory agreements will also terminate
at the time of the merger.
Prior to the merger, shareholders of the Series will be asked to approve new
investment advisory and subadvisory agreements, intended to take effect at the
time of the merger. The new agreements are expected to be substantially
identical to the existing agreements. Prior to the shareholder vote regarding
the new agreements, a proxy statement describing them in more detail will be
sent to those Policy Owners who are entitled to give instructions as to how
shares of the Series should be voted.
----------------
DRAYCOTT INTERNATIONAL EQUITY SERIES
Draycott Partners, Ltd. ("Draycott") serves as subadviser to the Draycott
International Equity Series (the "Series"). Draycott's parent, NEIC, has agreed
to sell Draycott to Cursitor Holdings Ltd. U.K. ("Cursitor"). The sale is
expected to occur in late December, 1995. Under the Act, the sale will
constitute a change in control of Draycott, which will terminate the current
subadvisory agreement between Draycott and TNE Advisers. Cursitor,
headquartered at 66 Buckingham Gate, London SW1E 6AU, England, is an investment
advisory holding company that had approximately $9.4 billion under management
at September 30, 1995.
Subsequent to the acquisition of Draycott by Cursitor, Cursitor itself is
expected to be acquired by Alliance Capital Management, L.P. ("Alliance"). This
transaction would result in Draycott becoming a wholly-owned subsidiary of a
new entity, Cursitor Alliance LLC, in which Alliance would own a 93% interest.
Alliance Capital Management Corporation, the sole general partner of, and the
owner of a 1% general partnership interest in, Alliance, is an indirect wholly-
owned subsidiary of The Equitable Life Assurance Society of the United States,
which is a wholly-owned subsidiary of The Equitable Companies Incorporated, a
holding company controlled by AXA, a French insurance holding company. If
consummated, the transaction would constitute a further change in control of
Draycott, which would again terminate the subadvisory agreement between
Draycott and TNE Advisers.
No changes in the Series' investment objective or policies, or in the
portfolio management personnel responsible for the Series' day-to-day
investment management, are contemplated in connection with either transaction.
Before either transaction is effected, shareholders of the Series will be asked
to approve new subadvisory agreements intended to take effect in the event the
transactions are consummated. The new subadvisory agreements are expected to be
identical in substance to the existing subadvisory agreement. Prior to the
shareholder vote regarding the new subadvisory agreements, a proxy statement
describing them in more detail will be sent to those Contract Owners who are
entitled to give instructions as to how shares of the Series should be voted.
----------------
ALGER EQUITY GROWTH SERIES
The trustees of the Fund have approved a new investment advisory agreement
between the Fund and TNE Advisers and a new subadvisory agreement between TNE
Advisers and Fred Alger Management, Inc. ("Alger"), both relating to the Alger
Equity Growth Series (the "Series") of the Fund. The new advisory and
subadvisory agreements would increase the fee rates payable by the Series to
TNE Advisers and payable by TNE Advisers to Alger, effective May 1, 1996. The
annual rate of the fee payable by the Series to TNE Advisers under the new
advisory agreement would be 0.75% of the Series' average daily net assets, as
compared to the current fee rate of 0.70%. The annual rate of the fee payable
by TNE Advisers to Alger under the new subadvisory agreement would be 0.45% of
the first $100,000,000 of the Series' average daily net
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assets, 0.40% of the next $400,000,000 of such assets and 0.35% of such assets
in excess of $500,000,000. A meeting of the Series' shareholders will be held
for the purpose of voting to approve or disapprove the new agreements. The new
agreements will not take effect unless they are approved by vote of the Series'
shareholders at the meeting. A proxy statement describing the new agreements in
more detail will be sent in advance of the meeting to those Policy Owners who
are entitled to give instructions as to how shares of the Series should be
voted at the meeting.
Effective January 1, 1996, TNE Advisers will modify the expense deferral
arrangement that currently applies to the Series by raising the expense limit
from 0.85% to 0.90% of the Series' net assets. Pursuant to the expense deferral
arrangement, TNE Advisers defers those operating expenses (other than brokerage
costs, interest, taxes and extraordinary expenses) in excess of the expense
limit until a subsequent year, if any, when total expenses are less than the
limit. (See "Expense Deferral Arrangement" under the section of the prospectus
entitled "Management.")
----------------
LOOMIS SAYLES SMALL CAP SERIES
The following information reflects changes in the investment management and
policies of the Loomis Sayles Small Cap Series (the "Series"):
Jeffrey C. Petherick, Vice President of Loomis, Sayles & Company, L.P.
("Loomis Sayles") and New England Zenith Fund, and Mary Champagne, Vice
President of Loomis Sayles, have day-to-day management responsibility for the
Series. Mr. Petherick has co-managed the Series since its inception. Mr.
Petherick was an investment manager at Masco Corporation prior to joining
Loomis Sayles in 1990. Ms. Champagne has co-managed the Series since July 1995.
Prior to joining Loomis Sayles in 1993, Ms. Champagne served as a portfolio
manager at NBD Bank for 10 years.
Loomis Sayles manages the Series by investing primarily in stocks of small
cap companies with good earnings growth potential that Loomis Sayles believes
are undervalued by the market. Loomis Sayles seeks to build a core small cap
portfolio of solid growth companies' stock with a smaller emphasis on special
situations and turnarounds (companies that have experienced significant
business problems but which Loomis Sayles believes have favorable prospects for
recovery), as well as unrecognized stocks.
----------------
VENTURE VALUE SERIES
Selected/Venture Advisers, L.P., sub-adviser to the Venture Value Series (the
"Series"), changed its name to Davis Selected Advisers, L.P. ("Davis Selected")
on October 1, 1995. Venture Advisers, Inc. is the sole general partner of Davis
Selected, which, in turn, is controlled by Shelby M. C. Davis.
Shelby M. C. Davis, a director of Venture Advisers, Inc. since 1968, was
primarily responsible for the day-to-day management of the Series from its
inception through September, 1995. Since October 1995, Mr. Davis and
Christopher C. Davis have co-managed the Series. Christopher C. Davis is a
Portfolio Manager at Davis Selected and a director of Venture Advisers, Inc.
and has been employed by Davis Selected since 1989.
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ZENITH LIFE
Variable Life Insurance Policies
Issued by
New England Variable Life Insurance Company
Supplement dated February 1, 1989
to
Prospectus dated May 1, 1988
THE FIXED ACCOUNT
NEVLICO anticipates making available a Fixed Account option under the
Policies prior to May 1, 1989. Once the Fixed Account is available, it will be
offered in a state when that state's insurance department has approved the
Fixed Account policy provision. The Fixed Account policy provision may not be
approved by every state insurance department and thus may not be available in
every state, but NEVLICO intends to seek its approval in all states.
The Policy Owner may allocate net premiums and may transfer cash value to
the Fixed Account, which is part of NEVLICO'S general account. Because of
exemptive and exclusionary provisions, interests in the Fixed Account have not
been registered under the Securities Act of 1933, and neither the Fixed
Account nor the general account has been registered as an investment company
under the Investment Company Act of 1940. Therefore, neither the general
account, the Fixed Account nor any interests therein are generally subject to
the provisions of these Acts, and NEVLICO has been advised that the staff of
the Securities and Exchange Commission does not review disclosures relating to
the general account. Disclosures regarding the Fixed Account may, however, be
subject to certain generally applicable provisions of the Federal securities
laws relating to the accuracy and completeness of statements made in
prospectuses.
GENERAL DESCRIPTION
NEVLICO's general account consists of all assets owned by NEVLICO other than
those in the Variable Account and any other separate accounts which NEVLICO
may establish. NEVLICO has sole discretion over the investment of assets in
the general account, including those in the Fixed Account. Policy Owners do
not share in the actual investment experience of the assets in the Fixed
Account. Instead, NEVLICO guarantees that cash value in the Fixed Account will
accrue interest at an effective annual net rate of at least 4%. NEVLICO is not
obligated to credit interest at a rate higher than 4%, although in its sole
discretion it may do so. Cash value in the Fixed Account will earn interest
daily at an effective annual rate that NEVLICO declares periodically.
NEVLICO's current method of crediting interest is as follows, although
NEVLICO may modify this method in the future. All cash value of a Policy in
the Fixed Account on a policy anniversary will earn interest at the declared
annual rate in effect on the anniversary. The cash value will earn interest at
this rate until the next policy anniversary, when it will be credited with the
current rate declared by NEVLICO. Any net premiums allocated or any portion of
the cash value transferred to the Fixed Account on a date other than a policy
anniversary will earn interest at NEVLICO's most recently declared rate until
the next policy anniversary.
VALUES AND BENEFITS
The Policy's cash value in the Fixed Account will reflect the amount and
frequency of net premiums allocated to the Fixed Account, the amount of net
interest credited to the cash value in the Fixed Account, any loans made
against the Fixed Account cash value, any charges deducted from cash value in
the Fixed Account, any transfers to or from the Variable Account and any
partial surrenders from the Fixed Account cash value. Cost of insurance
charges will be deducted from the Policy's cash value in the Fixed Account and
in the Policy's sub-accounts in proportion to the amount of the Policy's cash
value in each. (See "Cost of Insurance Charges" in the prospectus.) A Policy's
total cash value will include its cash value in the Variable Account, its cash
value in the Fixed Account, and any of its cash value held in NEVLICO's
general account (but outside the Fixed Account) as a result of a policy loan.
The Policy's Variable Death Benefit will depend on the net investment
experience of the Policy's sub-accounts and on the amount of interest credited
to the Policy's cash value in the Fixed Account. For the Policy of a male
insured in a standard risk
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classification, the Variable Death Benefit will increase if the Policy's
actual investment return (equal to the sum of the net investment experience of
the Policy's sub-accounts and the amount of interest credited to the Policy's
cash value in the Fixed Account) is greater than the monthly equivalent of a
4% annual net rate of return. (See "Net Investment Experience" and "Variable
Death Benefit" in the prospectus.)
POLICY TRANSACTIONS
NEVLICO reserves the right to restrict allocations to the Fixed Account.
Otherwise, allocations of net premiums to the Fixed Account are subject to the
same percentage requirements as are allocations to the Variable Account. (See
"Investment Option" in the prospectus.)
Except as described below, amounts in the Fixed Account are subject to the
same rights and limitations as are amounts in the Variable Account with
respect to transfers, loans and surrenders. (See "Cash Value of the Policy",
"Loan Provision" and "Transfer Option" in the prospectus.) The following
special rules apply to transactions involving amounts in the FIxed Account.
Transfers of amounts from the Fixed Account to the Variable Account will be
allowed only once in each policy year. A transfer of cash value from the Fixed
Account will be effected only if NEVLICO receives the transfer request no more
than 30 days before the Policy anniversary, and the transfer will be effected
as of the date the transfer request is received at NEVLICO's Principal
Administrative Office. The amount of cash value which may be transferred from
the Fixed Account is limited to the greater of 15% of the Policy's cash value
in the Fixed Account or the amount of cash value transferred from the Fixed
Account in the preceding policy year. Regardless of these limits, if a
transfer of cash value from the Fixed Account would reduce the remaining cash
value in the Fixed Account below $100, the Policy Owner may elect to transfer
the entire amount of cash value from the Fixed Account. The total number of
transfers among sub-accounts and from the sub-accounts to the Fixed Account
may not exceed four in one policy year without NEVLICO's consent. Transfers
out of the Fixed Account will not be counted against this limit. NEVLICO
reserves the right to restrict transfers of cash value into the Fixed Account.
Unless the Policy Owner requests otherwise, a policy loan will reduce the
Policy's cash value in the sub-accounts and not the cash value allocated to
the Fixed Account. In the event that the cash value in the Policy's sub-
accounts is insufficient to provide the amount of the loan, the balance of the
loan will be taken from the cash value in the Fixed Account. All loan
repayments will be allocated first to the outstanding loan balance
attributable to the Fixed Account. The amount removed from the Policy's sub-
accounts and the Fixed Account as a result of a loan will earn interest at 4%,
which will be credited annually to the Policy's cash value in the sub-accounts
and the Fixed Account in proportion to the Policy's cash value in each on the
date it is credited.
Unless the Policy Owner requests otherwise, partial surrenders will be taken
only from the Policy's sub-accounts and not the Fixed Account. In the event
that the cash value in the Policy's sub-accounts is insufficient to provide
the full amount requested, the balance of the partial surrender will be taken
from the Fixed Account.
NEVLICO reserves the right to delay transfers and surrenders from, and
policy loans attributable to, the Fixed Account for up to six months. Loans to
pay premiums on policies issued by NEVLICO will not be delayed.
NEW TAX LAW
The following discussion of Federal income tax issues relating to the
Policies is general in nature and is not intended as tax advice. NEVLICO
recommends that Policy Owners and prospective owners of the Policies consult
their own tax advisors for more complete information and advice.
The Technical and Miscellaneous Revenue Act of 1988 (passed by Congress on
October 21, 1988, and signed into law by the President on November 10, 1988)
contains provisions altering the tax treatment of any loan or other pre-death
distribution from a new category of life insurance policies called "modified
endowment contracts".
With certain exceptions discussed below, a Policy will not have the
potential to be classified as a modified endowment contract unless it was
issued on or after June 21, 1988. (See "Effective Date" below.) Even a Policy
issued on or after June 21, 1988 will not have the potential to be a modified
endowment contract unless (1) the face amount is reduced either in the first
seven policy years or in the first seven policy years following a material
change in the Policy (see "Material Changes" below) or (2) a rider is added to
the Policy after it is issued.
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MODIFIED ENDOWMENT CONTRACT
A modified endowment contract is a life insurance contract issued on or
after June 21, 1988, which fails to satisfy a "7-pay test". In general, a life
insurance policy will fail to satisfy the 7-pay test if the cumulative amount
paid under the policy at any time during the first seven policy years exceeds
the sum of the net level premiums that would have been paid on or before such
time had the policy provided for paid up future benefits after the payment of
seven level annual premiums. Riders to the policy are considered part of the
policy for purposes of applying the 7-pay test. Any policy received in
exchange for a modified endowment contract will also be a modified endowment
contract.
Normally, payment of the Policy's premiums will not cause it to be a
modified endowment contract. If however, the Policy's face amount is reduced
in the first seven policy years, either as a result of a partial surrender or
because the Policy Owner allows the Policy to lapse to Paid-up Insurance, the
7-pay test will be applied as if the Policy had originally been issued at the
reduced face amount. In that event, the Policy could fail the 7-pay test and
be classified as a modified endowment contract.
MATERIAL CHANGES
If a "material change" in the benefits or other Policy terms occurs under a
Policy which has satisfied the 7-pay test, the Policy will be treated as a new
Policy entered into on the day on which the material change occurred. The
Policy will be retested under the 7-pay test, after making certain adjustments
to reflect the Policy's existing cash value. For this purpose, only the
addition of a rider to the Policy will constitute a material change requiring
a retesting under the 7-pay test. A Policy subject to retesting in this manner
could fail the 7-pay test.
It is important to be aware that the addition of a rider to any Policy, even
a Policy issued before June 21, 1988, is a material change which requires the
Policy to be tested under the 7-pay test. (See "Effective Date" below.)
Regardless of when it was issued, if a Policy described in the Zenith Life
prospectus is exchanged on or after June 21, 1988 for another life insurance
policy, including a fixed-benefit policy pursuant to the twenty-four month
exchange right, the new insurance policy should be reviewed to determine how
the rules regarding modified endowment contracts may apply to the new policy.
(See "Exchange of Policy During First 24 Months" in the prospectus.)
DISTRIBUTIONS
If a Policy is a modified endowment contract, then the following rules will
apply to distributions under such a contract:
(a) Distributions will be includible in the Policy Owner's gross income to
the extent the cash value of the Policy exceeds the Policy Owner's
investment in the Policy. Any additional amounts received other than
policy loans will be treated as a return of capital to the Policy Owner
and will reduce the Policy Owner's investment in the Policy.
(b) Loans are considered distributions even if the amount borrowed is
retained by NEVLICO as a premium. The Policy Owner's investment in the
Policy will be increased by the amount of any prior loan that was
included in the Policy Owner's gross income.
(c) A partial surrender to pay premiums is not a transaction specifically
addressed and may or may not be treated as a taxable distribution.
(d) For purposes of determining the amount of the distribution which is
includible in gross income, all modified endowment contracts issued by
NEVLICO or its affiliates to the same Policy Owner during any 12 month
period shall be treated as one modified endowment contract.
The amount of any taxable distribution will be subject to an additional tax
equal to 10% of the taxable income realized on the distribution unless the
distribution is:
(a)made on or after the date the Policy Owner attains age 59 1/2;
(b)is attributable to the Policy Owner's becoming disabled; or,
(c) is part of a series of substantially equal periodic payments made no
less frequently than annually for the life (or life expectancy) of the
Policy Owner.
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If a Policy becomes a modified endowment contract, distributions made during
the policy year in which it becomes a modified endowment contract,
distributions in any subsequent policy year and distributions within two years
before the Policy becomes a modified endowment contract will be subject to the
tax treatment described above. In addition, the Secretary of the Treasury may
issue regulations which will apply similar tax treatment to other
distributions made in anticipation of a Policy becoming a modified endowment
contract.
EFFECTIVE DATE
As explained above, the rules regarding modified endowment contracts apply
only to Policies issued on or after June 21, 1988. For this purpose, the
following Policies, even if issued before June 21, 1988 will be considered
issued on or after June 21, 1988:
(a) a Policy under which, after June 20, 1988 an additional benefit (i.e. a
Policy rider) is added if, prior to June 21, 1988 the Policy Owner did
not have the right to obtain such addition without submitting
additional evidence or insurability; and
(b) a Policy issued after June 20, 1988 upon conversion of a term life
policy.
NON-MODIFIED ENDOWMENT CONTRACTS
For Policies not classified as modified endowment contracts, the tax
treatment of various pre-death distributions under the Policies remains
unchanged. As a result, NEVLICO believes any policy loans received under such
Policies will not be treated as income to the Policy Owner. If a distribution
under such a Policy occurs which has the net effect of reducing future
benefits (such as future death benefits), all or part of the distribution may
be taxable to the Policy Owner to the extent of any investment earnings in the
Policy.
BASIC BENEFITS OF LIFE INSURANCE RETAINED
NEVLICO believes the Policies described in the prospectus continue to meet
the definition of life insurance as defined in the Internal Revenue Code, as
recently amended. As a result, NEVLICO believes death benefits received under
the Policies are excludable from the gross income of the beneficiary. In
addition, the investments of the Variable Account continue to be "adequately
diversified" in accordance with the requirements of section 817(h) of the
Internal Revenue Code and, therefore, NEVLICO believes Policy Owners would not
be taxed on incremental increases in cash value of the Policy until an actual
distribution is received. (See "Tax Considerations" in the prospectus.)
NEW REQUIREMENTS FOR CERTAIN POLICIES ISSUED ON OR AFTER SEPTEMBER 1, 1988
For Policies issued in Massachusetts on or after September 1, 1988, cost of
insurance rates will not vary based on the sex of the insured. (See "How are
Changes in the Variable Death Benefit and cash value different for a preferred
risk Policy, a female insured's Policy and a non-sex based Policy?")
Certain riders may not be available for non-sex based Policies. A Policy
Owner should consult his or her agent regarding the availability of particular
riders.
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NEW ENGLAND VARIABLE LIFE
INSURANCE COMPANY
Variable Life Insurance Policies
Issued by
New England Variable Life Insurance Company
501 Boylston Street
Boston, Massachusetts 02117
(617) 578-2000
This prospectus describes individual Variable Life Insurance Policies (the
"Policies") offered by New England Variable Life Insurance Company
("NEVLICO"), a stock life insurance company that is a wholly-owned subsidiary
of New England Mutual Life Insurance Company ("The New England"). Each Policy
Owner may allocate the premiums for his or her Policy among one or more of the
five investment sub-accounts of NEVLICO's Variable Life Separate Account,
after certain deductions have been made.
Each Policy is designed to provide lifetime insurance protection for the
insured named in the Policy. Each Policy also provides for a net cash value
while the insured is living. The death benefits and cash values can vary based
on investments made in one or more sub-accounts of NEVLICO's Variable Life
Separate Account. A Policy's death benefit can vary monthly, depending on the
investment experience of the sub-accounts to which the policy owner allocates
the Policy's net premiums. NEVLICO guarantees that a Policy's death benefit
will never be less than a guaranteed minimum amount, which is the initial face
amount specified in the Policy, as long as premiums are paid when due and
there is no outstanding policy loan. A Policy's cash value generally increases
with the payment of each premium and also can vary with investment experience
as of each day the New York Stock Exchange is open for trading. There is no
guaranteed minimum cash value.
Each sub-account of NEVLICO's Variable Life Separate Account invests in the
shares of one mutual fund portfolio of the New England Zenith Fund. Each
portfolio of the New England Zenith Fund uses the investment advisory services
of either Back Bay Advisors, Inc., an indirect wholly-owned subsidiary of The
New England, or Loomis Sayles & Company, Incorporated, an affiliate of The New
England and one of the largest and oldest investment counsel firms in the
United States.
The Money Market Sub-Account invests in shares of the Money Market Series.
The Bond Income Sub-Account invests in shares of the Bond Income Series. The
Capital Growth Sub-Account invests in shares of the Capital Growth Series. The
Stock Index Sub-Account invests in shares of the Stock Index Series. The
Managed Sub-Account invests in shares of the Managed Series.
It may not be advantageous to replace existing insurance with a Variable
Life Insurance Policy. (See "Charges Deducted from Premiums" and Appendix B--
"Calculation of Change in Variable Death Benefit".)
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THIS PROSPECTUS IS NOT VALID UNLESS ACCOMPANIED OR PRECEDED BY THE CURRENT
PROSPECTUS OF THE NEW ENGLAND ZENITH FUND, WHICH IS ATTACHED AT THE END OF
THIS PROSPECTUS. THESE PROSPECTUSES SHOULD BE READ AND RETAINED FOR FUTURE
REFERENCE.
MAY 1, 1988
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TABLE OF CONTENTS
<TABLE>
<S> <C>
INTRODUCTION TO POLICIES................................................... 4
What is variable life insurance?......................................... 4
Who are NEVLICO and The New England...................................... 5
How is NEVLICO regulated?................................................ 5
Under what conditions are the Policies available?........................ 5
What is the Guaranteed Minimum Death Benefit?............................ 5
How does the death benefit vary?......................................... 5
How does the cash value vary?............................................ 6
How are changes in the Variable Death Benefit and cash value different
for a preferred risk Policy, a female insured's Policy and a non-sex-
based Policy?........................................................... 6
What is the loan provision, what loan interest rates are available, and
how does a policy loan affect the death benefit and cash value?......... 6
What is the amount of the premiums and when are premiums payable?........ 7
What are the Money Market Bond Income, Capital Growth, Stock Index and
Managed Sub-Accounts of the Variable Account?........................... 7
How are amounts allocated to each sub-account of the Variable Account?... 8
What is the relationship between the premium and the amount allocated to
the sub-accounts of the Variable Account?............................... 8
Are there charges against the sub-accounts of the Variable Account and
against the New England Zenith Fund?.................................... 8
What commissions are paid to agents?..................................... 8
Is there a short-term cancellation right, or "free look"?................ 9
Can a Policy be exchanged for a fixed-benefit life insurance policy?..... 9
When are communications and payments deemed received at NEVLICO's
Principal Administrative Office?........................................ 9
Are the benefits under a Policy subject to Federal income tax?........... 9
THE VARIABLE ACCOUNT....................................................... 10
Investments of the Variable Account...................................... 10
Investment Management.................................................... 11
CHARGES AND EXPENSES....................................................... 12
Charges Deducted from Premiums........................................... 12
Charges Against the New England Zenith Fund and the Sub-Accounts of the
Variable Account........................................................ 13
Cost of Insurance Charges................................................ 13
Guarantee of Premiums and Certain Charges................................ 13
Group or Sponsored Arrangements.......................................... 13
PRINCIPAL POLICY FEATURES.................................................. 14
Net Investment Experience................................................ 14
Death Benefit............................................................ 14
Guaranteed Minimum Death Benefit......................................... 15
Variable Death Benefit................................................... 15
Amount Provided for Investment in a Policy's Sub-Accounts................ 16
Cash Value of the Policy................................................. 17
Loan Provision........................................................... 18
Payment of Proceeds...................................................... 19
Premiums................................................................. 19
Investment Option........................................................ 21
Transfer Option.......................................................... 21
Default and Lapse Options................................................ 22
Exchange of Policy During First 24 Months................................ 22
Payment Options.......................................................... 23
Additional Benefits by Rider............................................. 23
Other Policy Features.................................................... 24
DISTRIBUTION AGREEMENT AND OTHER CONTRACTUAL ARRANGEMENTS.................. 24
</TABLE>
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<S> <C>
LIMITS TO NEVLICO's RIGHT TO CHALLENGE THE POLICY.......................... 25
Misstatement of Age or Sex............................................... 26
Suicide.................................................................. 26
TAX CONSIDERATIONS......................................................... 26
Policy Proceeds.......................................................... 26
Charge for NEVLICO's Income Taxes........................................ 26
MANAGEMENT................................................................. 27
VOTING RIGHTS.............................................................. 28
RIGHTS RESERVED BY NEVLICO................................................. 28
REPORTS.................................................................... 29
LEGAL MATTERS.............................................................. 29
REGISTRATION STATEMENT..................................................... 29
EXPERTS.................................................................... 29
APPENDIX A: ILLUSTRATIONS OF DEATH BENEFITS, CASH VALUES AND ACCUMULATED
PREMIUMS.................................................................. 30
APPENDIX B: CALCULATION OF CHANGE IN VARIABLE DEATH BENEFIT................ 35
APPENDIX C: HOW THE AMOUNT PROVIDED FOR INVESTMENT IN A POLICY'S SUB-
ACCOUNTS RELATES TO NET CASH VALUE........................................ 37
APPENDIX D: PREFERRED OR FEMALE COST OF INSURANCE FACTOR................... 38
APPENDIX E: INVESTMENT EXPERIENCE INFORMATION.............................. 39
FINANCIAL STATEMENTS....................................................... 42
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THE PURPOSE OF THE POLICIES IS TO PROVIDE INSURANCE PROTECTION FOR THE
BENEFICIARY NAMED IN A POLICY. NO CLAIM IS MADE THAT THE POLICIES ARE IN ANY
WAY SIMILAR OR COMPARABLE TO A SYSTEMATIC INVESTMENT PLAN OF A MUTUAL FUND.
You are urged to examine this prospectus carefully. Except as otherwise
stated, the discussion assumes all premiums are paid when due and there is no
outstanding policy loan.
The INTRODUCTION TO POLICIES will briefly describe NEVLICO and the Variable
Life Insurance Policies. More detailed information will be found later in the
prospectus.
INTRODUCTION TO POLICIES
WHAT IS VARIABLE LIFE INSURANCE?
The variable life insurance being offered by NEVLICO is, in many respects,
similar to traditional "fixed-benefit" whole-life insurance. In other
respects, it is quite different.
The main similarities are:
-- The Policy Owner pays a level premium for a Policy that provides a death
benefit which is payable to the beneficiary upon the insured's death.
-- A minimum death benefit is guaranteed.
-- The Policy has a net cash value that the Policy Owner may obtain by
surrendering the Policy. The Policy Owner may obtain a portion of the
cash value by taking a policy loan.
The main differences are:
-- The Policy Owner may allocate the Policy's premiums, after certain
deductions have been made, among one or more of the five investment sub-
accounts of NEVLICO's Variable Life Separate Account. These sub-accounts
are the Money Market, Bond Income, Capital Growth, Stock Index, and
Managed Sub-Accounts. Each sub-account invests in the shares of a
distinct mutual fund portfolio of the New England Zenith Fund.
-- The death benefit under a Policy can increase or decrease monthly
depending on the investment experience of the investment sub-accounts to
which the Policy's net premiums are allocated; but the death benefit
will never decrease below the initial face amount of the Policy if
premiums are paid when due and there is no outstanding policy loan.
-- The Policy offers the opportunity for appreciation of its net cash value
based upon investment results. The cash value may increase or decrease
as of each day the New York Stock Exchange is open for trading. It is
possible, if investment results are unfavorable, for the cash value to
decrease to zero; the Policy Owner bears the total risk of decreases in
the cash value, since no minimum amount is guaranteed.
The variable life insurance policies offered by NEVLICO are designed to
provide insurance protection. Net premiums under the Policies are invested by
NEVLICO in shares of mutual fund portfolios. The investment experience
credited to the Policy is based on the investment experience of the mutual
fund shares, but reflects certain additional charges associated with the
Policies. The underlying mutual fund portfolios invest in securities similar
to those in which mutual funds available directly to the public invest. In
many ways the Policies differ from mutual fund investments. The main
differences are:
-- The Policy provides a death benefit based on NEVLICO's assumption of an
actuarially calculated risk.
-- If premiums are not paid according to the requirements of the Policy,
the Policy will lapse.
-- In addition to sales charges, insurance-related charges not associated
with mutual fund investments are deducted from the premiums and values
of the Policy. These charges include various insurance, risk,
administrative and premium tax charges. (See "Charges and Expenses".)
-- The Variable Life Separate Account, and not the Policy Owner, owns the
mutual fund shares.
-- Federal income tax liability on any earnings is deferred until the
Policy Owner receives a distribution from the Policy. Transfers from one
underlying fund portfolio to another are accomplished without tax
liability.
-- Dividend and capital gains distributions are automatically reinvested.
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WHO ARE NEVLICO AND THE NEW ENGLAND?
NEVLICO was organized as a stock life insurance company in 1980 under
Delaware law as New England Pension and Annuity Company. Its current name was
adopted on January 7, 1983. As of January 1, 1988, NEVLICO was authorized to
transact a life insurance business in Delaware and in 49 other jurisdictions.
NEVLICO intends to seek licensing and approval to sell the Policies in all
United States jurisdictions where variable life insurance may be sold. The
Home Office of NEVLICO is in Wilmington, Delaware and its Principal
Administrative Office is at 501 Boylston Street, Boston , Massachusetts 02117.
NEVLICO is a wholly-owned subsidiary of The New England, which was organized
in Massachusetts in 1835. The New England is the oldest chartered mutual life
insurance company in the United States.
On December 31, 1987, The New England had over $14 billion of assets and
over $64 billion of life insurance in force.
As of December 31, 1987 The New England had invested $12.5 million in
NEVLICO in connection with NEVLICO's organization and initial operations, and
it is anticipated that The New England will from time to time make additional
capital contributions to NEVLICO to enable it to meet its initial reserve
requirements and expenses in connection with its business. However, The New
England is not legally required to make such contributions and The New
England's assets do not support the benefits payable under the Policies. (See
financial statements of NEVLICO under "Financial Statements".)
HOW IS NEVLICO REGULATED?
NEVLICO is subject to regulation and supervision by the Delaware Insurance
Commissioner. In addition, NEVLICO is subject to the applicable insurance laws
and regulations of all jurisdictions in which it is authorized to do business.
NEVLICO submits annual reports of its operations and finances to insurance
officials in jurisdictions in which it does business.
The Policy described in this prospectus has been filed with, and approved,
where required, by insurance officials in those jurisdictions where it is
sold.
UNDER WHAT CONDITIONS ARE THE POLICIES AVAILABLE?
A Policy may be issued to an insured from the ages of 0 to 75. All persons
must meet certain health and other criteria. Non-smokers who meet preferred
underwriting requirements and (except in the case of certain group or
sponsored arrangements) females will have guaranteed lower cost of insurance
charges deducted from their cash values. Therefore, Policies of such
individuals will have higher cash values and Variable Death Benefits than will
those for comparable Policies of male insureds in a standard risk
classification. (See "How does the death benefit vary?", "Variable Death
Benefit". "Cash Value of the Policy" and Appendix D--"Preferred or Female Cost
of Insurance Factor"). A higher premium is charged for a Policy in a
substandard risk classification, although such a Policy's cash value and
Variable Death Benefit are the same as for a Policy in a standard risk
classification. The minimum face amount that may be purchased is $25,000. For
certain group or sponsored arrangements, the minimum face amount required may
be reduced.
WHAT IS THE GUARANTEED MINIMUM DEATH BENEFIT?
NEVLICO guarantees that the death benefit under a Policy will never be less
than its initial face amount regardless of the investment experience of
NEVLICO's Variable Life Separate Account (the "Variable Account"), as long as
all premiums are paid when due and there is no outstanding policy loan. This
amount is the Guaranteed Minimum Death Benefit. (See "Guaranteed Minimum Death
Benefit" and "Loan Provision".)
HOW DOES THE DEATH BENEFIT VARY?
The death benefit payable with respect to a particular Policy is the greater
of the Guaranteed Minimum Death Benefit and the Variable Death Benefit,
subject to certain adjustments. (See "Death Benefit" and "Variable Death
Benefit".)
The Variable Death Benefit can increase or decrease on a monthly basis,
depending on the investment experience of the investment sub-account or sub-
accounts of the Variable Account in which the Policy Owner selected to have
net premiums invested (the "Policy's Sub-Accounts"). Once established each
month as of a "Monthly Valuation Date", the Variable Death Benefit will not
vary until the next succeeding Monthly Valuation Date. In the first policy
month, the Variable Death Benefit equals the face amount of the Policy.
Thereafter, the Variable Death Benefit will equal the Policy's initial face
amount, increased or decreased based on past net investment experience. (See
"Variable Death Benefit" and "Premiums".)
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If the Policy's Sub-Accounts experience a net investment experience at the
monthly equivalent of an annual rate of more than 4% per year, the Variable
Death Benefit will increase as of each Monthly Valuation Date and, if less
than that rate, the Variable Death Benefit will generally decrease as of each
Monthly Valuation Date, depending, among other things, upon the sex and risk
classification of the insured. (See "Net Investment Performance".) Any
increase or decrease in the Variable Death Benefit will not bear a dollar-for-
dollar relationship to the net investment experience of the Policy's Sub-
Accounts. (See Appendix A--"Illustrations of Death Benefit, Cash Values and
Accumulated Premiums", and Appendix B--"Calculation of Change in Variable
Death Benefit".)
Increases and decreases in the Variable Death Benefit are cumulative, so
they carry into each succeeding policy month. Therefore, if there is an
increase in the Variable Death Benefit, further net investment experience by
the Policy's Sub-Accounts at an annual rate of more than 4% will produce a
further increase in the Variable Death Benefit. During some periods, the
Variable Death Benefit may be below the Guaranteed Minimum Death Benefit. In
most cases, such Variable Death Benefit will not exceed the Guaranteed Minimum
Death Benefit until the Policy's Sub-Accounts have net investment experience
at an annual rate of more than 4% for a sufficient period of time to more than
offset the amount by which the Variable Death Benefit is lower than the
Guaranteed Minimum Death Benefit.
HOW DOES THE CASH VALUE VARY?
A Policy's cash value will increase by the amount of premiums paid, less the
amount of certain deductions. (See "Premiums", "Charges Deducted from
Premiums" and "Cash Value of the Policy".) Also, a Policy's cash value, like
its Variable Death Benefit, can increase or decrease depending on the net
investment experience of the Policy's Sub-Accounts. Any increase or decrease
in the cash value will not bear a dollar-for-dollar relationship to the net
investment experience of the Policy's Sub-Accounts. The cash value will be
subject to variation as of each day that the New York Stock Exchange is open
for trading. Although NEVLICO guarantees a minimum death benefit, NEVLICO does
not guarantee a minimum amount of cash value. Accordingly, the Policy Owner
will bear the entire investment risk with respect to the amount of the cash
value. (See "Cash Value of the Policy" and Appendix A.)
HOW ARE CHANGES IN THE VARIABLE DEATH BENEFIT AND CASH VALUE DIFFERENT FOR A
PREFERRED RISK POLICY, A FEMALE INSURED'S POLICY AND A NON-SEX-BASED POLICY?
Any change in the Variable Death Benefit or cash value discussed above will
generally be more favorable to the owner of a preferred risk Policy or a
female insured's Policy than for a comparable male insured's standard risk
Policy. However, for Policies sold in connection with certain employer-
sponsored benefit plans and fringe benefit programs, such changes will be the
same for both male and female insureds' Policies. Therefore, the hypothetical
Policy values shown throughout this prospectus for a male insured's standard
risk Policy would, in most cases, be somewhat different for a Policy sold in
connection with such plans and programs and which Policy does not vary based
on sex. (See "Group or Sponsored Arrangements" and Appendix D.) The more
favorable cash values and death benefits for female and preferred risk
insureds result from lower cost of insurance charges. For all Policies sold in
Montana, changes in the Variable Death Benefit or cash value will be the same
for both male and female insureds' Policies.
WHAT IS THE LOAN PROVISION, WHAT LOAN INTEREST RATES ARE AVAILABLE, AND HOW
DOES A POLICY LOAN AFFECT THE DEATH BENEFIT AND CASH VALUE?
After the first policy year, the Policy Owner may obtain a loan of up to 90%
of the Policy's net cash value, adjusted in the manner described in "Loan
Provision". A policy loan may be made in the first policy year only with
NEVLICO's consent. Interest accrues daily at an annual rate of 5%. Interest is
due on premium anniversaries and is added to the amount of the policy loan if
not paid when due. A policy loan may be repaid in whole or in part at any
time. If a policy loan plus accrued interest exceeds the Policy's cash value,
the Policy may terminate. (See "Loan Provision".)
While a policy loan is outstanding, an amount equal to the loan is removed
from the Policy's Sub-Accounts and is held in NEVLICO's general account. The
amount held in the general account is credited with interest at a net annual
rate of 4%, meaning that the amount borrowed will not contribute to any
possible increase or decrease in the Policy's Variable Death Benefit. Cash
value is also affected because the 4% interest credited can be different than
the net investment experience of the Policy's Sub-Accounts. (See "Loan
Provision.")
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Thus, the future net cash values and Variable Death Benefits can be
permanently affected by any policy loan, whether or not the policy loan is
repaid in whole or in part. Also, the death benefit and cash value otherwise
payable are reduced by the amount of any outstanding policy loan and interest
accrued thereon. (See "Loan Provision".)
WHAT IS THE AMOUNT OF THE PREMIUMS AND WHEN ARE THE PREMIUMS PAYABLE?
For the Policy of an insured in a standard or preferred risk classification,
premiums are fixed and level and do not vary with the investment experience of
the Policy's Sub-Accounts. The amount of the premium depends on the face
amount of the Policy, the insured's age and the frequency of premium payments.
For the Policy of an insured in a substandard risk classification, extra
premiums are payable. The length of time during which premiums are payable
depends on the age of the insured at issue. Insureds under 25 years of age pay
premiums for 40 years: those from ages 25 to 40 pay premiums to age 65: and
those above 40 years of age pay premiums for 25 years. Premiums are payable on
due dates at scheduled intervals selected by the Policy Owner, which intervals
may be quarterly, semi-annual, annual or, if agreed to by NEVLICO, otherwise.
Choice of premium payment schedule may be changed subject to the Company's
rules. The premium payment schedule selected will affect the amount of a
Policy's cash value and Variable Death Benefit, but will not affect the
Guaranteed Minimum Death Benefit. (See "Premiums".)
If premiums are paid other than annually, the sum of premium payments for a
given year will be larger than if the premiums were paid on an annual basis.
Also, additional premiums are charged for Policies in a substandard risk
classification and for additional insurance benefits provided by Rider.
Premiums unpaid when due are in default, but there is a 31-day grace period
during which insurance coverage remains in force. (See "Premiums", "Charges
Deducted from Premiums". "Default and Options on Lapse" and "Additional
Benefits by Rider".)
WHAT ARE THE MONEY MARKET, BOND INCOME, CAPITAL GROWTH, STOCK INDEX AND
MANAGED SUB-ACCOUNTS OF THE VARIABLE ACCOUNT?
NEVLICO's Variable Account has five sub-accounts which support the benefits
payable under the Policies--a Money Market Sub-Account, a Bond Income Sub-
Account, a Capital Growth Sub-Account, a Stock Index Sub-Account, and a
Managed Sub-Account. Each such investment sub-account of the Variable Account
will invest only in the shares of a single portfolio of the New England Zenith
Fund (formerly the NEL Series Fund, Inc.)
The Money Market Sub-Account invests in shares of the Money Market Series,
which in turn purchases money market instruments with maturities of one year
or less. Its investment objective is to provide the highest possible level of
current income consistent with preservation of capital.
The Bond Income Sub-Account invests in shares of the Bond Income Series,
which in turn invests primarily in an investment quality bond portfolio. Its
investment objective is to provide a high level of current income consistent
with protection of capital and moderate investment risk.
The Capital Growth Sub-Account invests in shares of the Capital Growth
Series, which in turn invests primarily in common stocks of companies that are
considered to have the potential for capital appreciation. Its investment
objective is long-term growth of capital. (See "Investments of the Variable
Account".)
The Stock Index Sub-Account invests in shares of the Stock Index Series,
which in turn invests primarily in common stocks. Its investment objective is
to provide investment results that correspond to the composite price and yield
performance of United States publicly traded common stocks.
The Managed Sub-Account invests in shares of the Managed Series, which in
turn may invest in (i) common stocks, (ii) notes and bonds and (iii) money
market instruments. Its investment objective is to provide a favorable total
investment return through investment in a diversified portfolio.
The New England Zenith Fund has served as the investment medium for the
Variable Account since the Variable Account commenced operations. The New
England Zenith Fund is an open-end diversified management investment company.
Back Bay Advisors, Inc. ("Back Bay Advisors"), a wholly-owned subsidiary of
New England Life Companies, Inc. ("NELC"), which is a wholly-owned subsidiary
of The New England, acts as investment adviser to the New England Zenith
Fund's Money Market Series, Bond Income Series, Stock Index Series and Managed
Series. Loomis, Sayles & Company, Incorporated ("Loomis Sayles") acts as
investment adviser to the Capital Growth Series. The New England indirectly
owns a controlling interest in
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Loomis Sayles. Back Bay Advisors and Loomis Sayles are paid fees by the New
England Zenith Fund for rendering such investment advice. (See "Investment
Management" and the New England Zenith Fund prospectus attached at the end of
this prospectus.)
HOW ARE AMOUNTS ALLOCATED TO EACH SUB-ACCOUNT OF THE VARIABLE ACCOUNT?
On the application, the Policy Owner will designate what percentage of each
net premium will be invested in NEVLICO's Money Market, Bond Income, Capital
Growth, Stock Index or Managed Sub-Accounts. The percentage allocated to any
one sub-account may not be less than 10% of the net premium, and must be a
whole number. Percentage allocations for future net premiums may be changed by
the Policy Owner at any time. A Policy Owner may redistribute among sub-
accounts amounts held for his or her benefit up to four times in a policy year
without consent of NEVLICO. (See "Investment Option" and "Transfer Option".)
WHAT IS THE RELATIONSHIP BETWEEN THE PREMIUM AND THE AMOUNT ALLOCATED TO THE
SUB-ACCOUNTS OF THE VARIABLE ACCOUNT?
Each net premium is allocated by NEVLICO to one or more of NEVLICO's Money
Market, Bond Income, Capital Growth, Stock Index, or Managed Sub-Accounts. The
timing of the allocation of the initial net premium is described under "Amount
Provided for Investment in a Policy's Sub-Accounts". Subsequent net premiums
are allocated on their due dates. The net premium for each premium interval is
the basic premium payable for such interval less the charges deducted for
sales load, state premium taxes and a minimum death benefit risk charge to
support the Guaranteed Minimum Death Benefit. An additional deduction for
administrative expenses in connection with the issuance of a Policy is made in
the first policy year. Basic premium payments are all premium payments minus
payments for any optional insurance benefits the Policy Owner selects by
rider, any extra premiums paid for a Policy in a substandard risk
classification and an annual administrative charge. (See "The Variable
Account" and "Charges Deducted from Premiums".)
The charge for sales load will not exceed 20% of the basic premium payments
during the first policy year, 12% of the basic premium payments made for the
second through fourth policy years and 7.75% of basic premium payments made in
subsequent policy years. Also, the sales charge will not exceed 9% of the
total basic premium payments during the period equal to the lesser of (i) 20
years or (ii) the expected life of the insured based on the 1958 Commissioners
Standard Ordinary Mortality table.
Sales charges for Policies sold under certain group or sponsored
arrangements may be lower than for Policies sold otherwise. (See "Group or
Sponsored Arrangements".)
The premium payment schedule chosen affects the amount of death benefit and
cash value. (See "Premiums".)
ARE THERE CHARGES AGAINST THE SUB-ACCOUNTS OF THE VARIABLE ACCOUNT AND AGAINST
THE NEW ENGLAND ZENITH FUND?
NEVLICO charges the sub-accounts of the Variable Account for the mortality
and expense risks NEVLICO assumes. The charge is made daily at an effective
annual rate of .35% of the value of each sub-account's assets that come from
Variable Life Insurance Policies. NEVLICO also makes a charge for the cost of
insurance with respect to each Policy. Charges for investment advisory
expenses are deducted from the assets of the New England Zenith Fund at the
following maximum annual percentage rates of the current daily net asset value
of each respective portfolio: .35% for the Money Market Series, .40% for the
Bond Income Series, .70% for the Capital Growth Series, .25% for the Stock
Index Series and .50% for the Managed Series. (See "Charges Against the New
England Zenith Fund and the Sub-Accounts of the Variable Account".)
NEVLICO is a relatively new life insurance company and does not expect to
incur any substantial Federal income tax liabilities for a number of years. In
addition, under current Federal income tax law no tax is imposed upon NEVLICO
as a result of the operations of the Variable Account. Thus, no charge is
being made currently to the Variable Account for company Federal income taxes
attributable to the Variable Account. If changes are made in the Federal
income tax treatment of variable life insurance at the company level, NEVLICO
reserves its rights to charge the Variable Account for company Federal income
taxes.
WHAT COMMISSIONS ARE PAID TO AGENTS?
The Policies are sold through agents who are licensed by state authorities
to sell NEVLICO's insurance policies and who are also registered
representatives of New England Securities Corporation ("New England
Securities"), the principal underwriter of the Variable Account. New England
Securities is a wholly-owned subsidiary of NELC. The Policies may also be sold
through other broker-dealers which have a selling agreement with New England
Securities and whose representatives are authorized by
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applicable law to sell Variable Life Insurance Policies. Commissions for the
first policy year are not more than 45% of the premiums paid. The amount of
commissions for extra premiums for a Policy covering an insured in a
substandard risk classification will be determined by NEVLICO's rules and
practices current at the time such extra premiums are charged. NEVLICO may
recapture up to 50% of the first year commission paid to the agent if the
Policy is not continued after the first policy anniversary. Commissions
payable for later years are described under the caption, "Distribution
Agreement and Other Contractual Arrangements". Sales expenses in any year are
not equal to the deduction for sales load in that year. Rather, total sales
expenses under the Policies are intended to be recovered over the lifetimes of
the Policies. Sales expenses, including agents' commissions, are paid by
NEVLICO and do not represent a charge against a Policy in addition to the
other charges and deductions described herein.
IS THERE A SHORT-TERM CANCELLATION RIGHT, OR "FREE LOOK"?
The Policy Owner may cancel the Policy within 45 days after the date Part I
of the application is signed, within 10 days after receipt of the Policy by
the Policy Owner or within 10 days after mailing by NEVLICO of the Notice of
Withdrawal Right, whichever is latest. The Policy may be returned to NEVLICO
or its agent. Immediately upon return, the Policy shall be deemed void from
the beginning. Within 7 days after receipt of the returned Policy at NEVLICO's
Principal Administrative Office. NEVLICO will refund any premium paid before
cancellation, or any higher amount required by appliance law. (See "When are
communications and payments deemed received at NEVLICO's Principal
Administrative Office?")
CAN A POLICY BE EXCHANGED FOR A FIXED-BENEFIT LIFE INSURANCE POLICY?
Within twenty-four months after a Policy's date of issue, the Policy may be
exchanged for a fixed-benefit policy on the life of the insured, which policy
will be issued by New England Mutual Life Insurance Company. This exchange may
be made without the submission of evidence of insurability. The new policy
will have the same face amount as the Policy. For Policies issued in New York,
the Policy Owner has the option of exchanging to a new policy with a face
amount equal to the current death benefit of the exchanged Policy. (See
"Exchange of Policy During First 24 Months".)
WHEN ARE COMMUNICATIONS AND PAYMENTS DEEMED RECEIVED AT NEVLICO'S PRINCIPAL
ADMINISTRATIVE OFFICE?
A Policy Owner's request for a particular transaction (other than a policy
loan) or a Policy Owner's submission of payments or other items (for example,
a returned Policy) is deemed received at NEVLICO's Principal Administrative
Office on any day when the New York Stock Exchange is open if received there
before the closing of the Exchange (currently 4:00 p.m.) on such day. A
request for a policy loan is deemed received at NEVLICO's Principal
Administrative Office on a day when the New York Stock Exchange is open if
received at NEVLICO's Principal Administrative Office before 7:00 p.m. New
York City time on such day. However, if any such item is received at or after
the above-specified times, the request will be deemed received as of the next
such day.
ARE THE BENEFITS UNDER A POLICY SUBJECT TO FEDERAL INCOME TAX?
Section 7702 of the Internal Revenue Code (hereinafter "Code") provides a
definition of a life insurance contract for Federal income tax purposes. This
definition applies to the Policies discussed herein and NEVLICO believes these
Policies meet the definition.
NEVLICO believes the death benefits received under its Variable Life
Insurance Policies are excludable from the gross income of the beneficiary
pursuant to the provisions of Section 101(a) of the Code. Furthermore, NEVLICO
believes owners of its Policies will not be deemed to be in constructive
receipt of the cash values, including increments thereon, under such Policies
until their actual surrender. In the event of a distribution under the
Policies which has the net effect of reducing future benefits (such as future
death benefits) under the Policies, all or part of the distribution may be
taxable to the Policy Owner as ordinary income to the extent of any investment
earnings in the Policy. In addition, NEVLICO believes that loans received
under a Policy will not be treated as taxable income to the Policy Owner. (See
"Tax Considerations".)
Since tax consequences depend on the individual circumstances of the Policy
Owner or beneficiary of a Policy, NEVLICO recommends that each prospective
Policy Owner consult his or her own tax advisor before purchasing a Policy.
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THE VARIABLE ACCOUNT
The Variable Account was established as a separate investment account of
NEVLICO on January 31, 1983 by NEVLICO's Board of Directors in accordance with
the provisions of Section 2932 of the Delaware Insurance Code. The Variable
Account acts as the funding vehicle for certain variable life insurance
policies issued by NEVLICO other than the Policies. The Variable Account is
registered with the Securities and Exchange Commission (the "SEC") under the
Investment Company Act of 1940 as a unit investment trust. A unit investment
trust is a type of investment company which invests its assets in specified
securities, such as the shares of one or more investment companies, rather
than in a portfolio of unspecified securities. Registration under the
Investment Company Act of 1940 does not involve supervision by the SEC of the
management or investment practices or policies of the Variable Account or of
NEVLICO. Under Delaware law, however, both NEVLICO and the Variable Account
are subject to regulation by the Delaware Insurance Commissioner. NEVLICO and
its variable life insurance operations, including the investment of assets
held by the Variable Account, are also subject to the insurance laws and
regulations of all jurisdictions in which NEVLICO is authorized to do
business.
Although the assets of the Variable Account are owned by NEVLICO, that
portion of the Variable Account assets equal to the reserves and other
liabilities of the Variable Account may not be used to satisfy any obligations
that may arise out of any other business NEVLICO may conduct. But NEVLICO may
transfer to its general account assets which exceed the reserves and other
liabilities of the Variable Account. Before making any such transfer, NEVLICO
will consider any possible adverse impact the transfer might have on the
Variable Account.
Income and realized and unrealized capital gains and losses of the Variable
Account are credited to the Variable Account without regard to any of
NEVLICO's other income or realized and unrealized capital gains and losses.
NEVLICO may accumulate in the Variable Account the charge for expense and
mortality risks, mortality gains and losses and investment results applicable
to those assets that are in excess of net assets supporting the Policies.
INVESTMENTS OF THE VARIABLE ACCOUNT
The Variable Account has five investment sub-accounts, each of which invests
in the shares of one portfolio of the New England Zenith Fund. The sub-
accounts of the Variable Account are:
-- The Money Market Sub-Account--Amounts credited to this sub-account are
invested in shares of the Money Market Series.
-- The Bond Income Sub-Account--Amounts credited to this sub-account are
invested in shares of the Bond Income Series.
-- The Capital Growth Sub-Account--Amounts credited to this sub-account are
invested in shares of the Capital Growth Series.
-- The Stock Index Sub-Account--Amounts credited to this sub-account are
invested in shares of the Stock Index Series.
-- The Managed Sub-Account--Amounts credited to this sub-account are
invested in shares of the Managed Series.
The New England Zenith Fund is an open-end, diversified management
investment company organized by The New England for the purpose of providing a
vehicle for the investment of assets held in various separate investment
accounts, including the Variable Account, established by NEVLICO or by other
life insurance companies, to the extent legally permissible.
For each day when the New York Stock Exchange is open for trading, the
Variable Account purchases or redeems shares of the New England Zenith Fund
portfolios based on, among other things, the amount of net premiums invested
in the Variable Account, transfers among sub-accounts of the Variable Account,
policy loans, policy loan repayments, surrender payments and death benefit
payments to be effected on that day. Such purchases and redemptions are
effected at the net asset value per share for each New England Zenith Fund
portfolio determined as of 4:00 p.m. New York City time, on that same day.
The investment objectives of the New England Zenith Fund's five portfolios
currently available to Policy Owners through each corresponding sub-account
are set forth below. There is, of course, no assurance that these objectives
will be met.
The Money Market Sub-Account invests in shares of the New England Zenith
Fund's Money Market Series. Its investment objective is to provide the highest
possible level of current income consistent with preservation of capital. The
Money Market Series seeks to achieve its objective through investment in a
managed portfolio of money market instruments.
10
<PAGE>
The Bond Income Sub-Account invests in shares of the New England Zenith
Fund's Bond Income Series. Its investment objective is to provide a high level
of current income consistent with protection of capital and moderate
investment risk. The Bond Income Series seeks to achieve its objective through
investment primarily in an investment quality bond portfolio.
The Capital Growth Sub-Account invests in shares of the New England Zenith
Fund's Capital Growth Series. Its investment objective is long-term growth of
capital through investment primarily in common stocks of companies that are
considered to have the potential for capital appreciation.
The Stock Index Sub-Account invests in shares of the New England Zenith
Fund's Stock Index Series. Its investment objective is to provide investment
results that correspond to the composite price and yield performance of United
States publicly traded common stocks. The Stock Index Series currently seeks
to achieve its objective by attempting to duplicate the composite price and
yield performance of the Standard & Poor's 500 Composite Stock Price Index.
The Managed Sub-Account invests in shares of the New England Zenith Fund's
Managed Series. Its investment objective is to provide a favorable total
investment return through investment in a diversified portfolio. The Managed
Series portfolio is expected to include (i) common stocks, (ii) notes and
bonds and (iii) money market instruments.
The basic objective of the Policy is to provide benefits which will increase
in value if the investment experience of the Policy's sub-accounts is
favorable. Historically, the investment performance of common stocks over the
long term has generally been superior to that of long or short-term debt
securities, although common stocks have been subject to more dramatic changes
in value over short periods of time. The Capital Growth or Stock Index Sub-
Account may, therefore, be a more desirable selection for Policy Owners who
are willing to accept such risks of short-term fluctuations in value.
The performance of the various financial markets over the past several
years, however, has differed from their long-term historical results. Short-
term interest rates were very high at one time but have recently been much
lower. Long-term bond values have fluctuated to a much greater extent than in
the past, and common stock prices, which have risen substantially at times,
have recently been quite volatile. Policy Owners who seek somewhat greater
protection against loss of principal than that afforded by a stock fund may
prefer the Bond Income Sub-Account. Those who seek even greater safety of
principal may select the Money Market Sub-Account, even though it is subject
to possible rapid changes in the level of short term interest rates.
A Policy Owner may wish to diversify his or her investments by allocating
the Policy's cash value among two or more sub-accounts. Policy Owners who
diversify by selecting the Managed Sub-Account thereby obtain the services of
a professional investment adviser in achieving an asset mix. The selection of
a Policy's sub-accounts is a matter of each Policy Owner's own choice and
should depend on that Policy Owner's willingness to accept investment risks,
the manner in which the Policy Owner's other assets are invested, and the
Policy Owner's own assessment of future economic and financial market
conditions.
A full description of the New England Zenith Fund, its investment
objectives, policies and restrictions, its expenses and other aspects of its
operation, as well as a full description of risks related to investment in the
New England Zenith Fund, is contained in the attached New England Zenith Fund
prospectus, which should be read and retained together with this prospectus,
as well as in the New England Zenith Fund's Statement of Additional
Information which may be obtained free of charge from New England Securities.
INVESTMENT MANAGEMENT
Back Bay Advisors, an indirect wholly-owned subsidiary of The New England,
acts as investment adviser to the Money Market Series, the Bond Income Series,
the Stock Index Series and the Managed Series, and Loomis Sayles acts as
investment adviser to the Capital Growth Series, both pursuant to investment
advisory agreements with the New England Zenith Fund. Both Back Bay Advisors
and Loomis Sayles are registered investment advisers under the Investment
Advisers Act of 1940. The New England formerly served as investment adviser to
the Money Market Series and the Bond Income Series. Effective September 10,
1986, with the approval of the Board of Directors of the New England Zenith
Fund, Back Bay Advisors assumed the responsibilities of The New England under
the advisory agreement with The New England with respect to those Series. Back
Bay Advisors was formed by The New England in order to house its investment
advisory activities in a separate corporate entity for administrative and
regulatory purposes. Loomis Sayles, an affiliate of The New England, is one of
the largest and oldest investment counsel firms in the United States. For its
investment management and advisory services, each investment adviser is paid a
fee through a daily charge to the separate portfolios. The fee is calculated
by applying the daily equivalent of annual percentage rates specified in the
advisory agreements to the current daily net asset value of each respective
portfolio, as follows:
11
<PAGE>
<TABLE>
<CAPTION>
ANNUAL
PERCENTAGE DAILY NET
PORTFOLIO ADVISER RATE ASSET VALUE LEVELS
- --------- ------- ---------- ------------------
<S> <C> <C> <C>
Money Market Back Bay Advisors .35% of the first $500 million
Series
.30% of the next $500 million
.25% of amounts in excess of $1 billion
Bond Income Back Bay Advisors .40% of the first $400 million
Series
.35% of the next $300 million
.30% of the next $300 million
.25% of amounts in excess of $1 billion
Capital Loomis Sayles .70% of the first $200 million
Growth Se-
ries
.65% of the next $300 million
.60% of amounts in excess of $500 million
Stock Index Back Bay Advisors .25% of net asset value
Series
Managed Se- Back Bay Advisors .50% of net asset value
ries
</TABLE>
Back Bay Advisors and Loomis Sayles also perform investment advisory
services for a number of other accounts and clients, including a number of
mutual and variable annuity funds and certain subsidiaries of The New England.
If the total ordinary business expenses of a particular portfolio exceed
certain limitations for a given fiscal year, the portfolio's investment
adviser will pay such excess. Certain of the New England Zenith Fund's
operating expenses will be paid by the New England Zenith Fund. (See "Charges
Against the New England Zenith Fund and the Sub-Accounts of the Variable
Account".) The remainder of such expenses will be borne by The New England.
For a discussion of other provisions of the advisory agreements, see the New
England Zenith Fund prospectus attached at the end of this prospectus and the
New England Zenith Fund's Statement of Additional Information.
CHARGES AND EXPENSES
CHARGES DEDUCTED FROM PREMIUMS
Certain deductions are made from each premium payment to arrive at a basic
premium payment for a Policy. These deductions are: (i) the amount of payments
for any optional insurance benefits for Policy Owner selects by rider: (ii)
any extra premiums paid for a Policy in a substandard risk classification: and
(iii) an annual Policy administrative charge. Where premiums are paid
annually, the annual Policy administrative charge is $35. For a Policy under
which premiums are payable more frequently than annually, this charge will be
greater to an extent dependent on the premium payment schedule chosen;
however, this charge will not exceed $48. The administrative expenses charged
for include: (i) premium billing and collection: (ii) processing claims,
paying net cash values upon surrender and making Policy changes; (iii) record
keeping; (iv) communicating with Policy Owners; and (v) other expenses, such
as communicating with agents.
The charges described below are deducted from each basic premium payment to
arrive at a net premium. The amount of net premium put into the Variable
Account as of each premium due date does not vary based on the sex or risk
classification of the insured.
ADDITIONAL FIRST YEAR ADMINISTRATIVE CHARGE. In the first policy year,
NEVLICO makes a one-time administrative charge of not more than $3.50 for each
$1,000 of face amount for the Policy. For a Policy under which premiums are
payable more frequently than annually, this charge will be greater to an
extent dependent on the premium payment schedule chosen; however, this charge
will not exceed $3.75 for each $1,000 of face amount for the Policy. This
charge covers the cost of: (i) processing applications; (ii) conducting
medical examinations; (iii) establishing Policy records; and (iv) determining
insurability and assigning the insured to a risk classification. For a Policy
under which premiums are payable more frequently than annually, this charge
will be prorated.
SALES CHARGE. The charge for sales load made by NEVLICO will not be greater
than 20% of the basic premium payments during the first policy year plus 12%
of the basic premium payments made for the second through fourth policy years
and 7.75% of the basic premium payments made in subsequent policy years. Also,
the sales charge will not exceed 9% of the total basic premium payments during
the period equal to the lesser of (i) 20 years or (ii) the expected life of
the insured based on the 1958 Commissioners Standard Ordinary Mortality Table.
(See "What is the relationship between the premium and the amount allocated to
the sub-accounts of the Variable Account?") The amount of the sales charge in
a policy year is not necessarily
12
<PAGE>
related to NEVLICO's actual sales expenses for that year. To the extent sales
expenses are not covered by the sales charge, they will be recovered from
surplus and other funds. Sales charges for Policies sold under certain group
or sponsored arrangements may be lower than for Policies sold otherwise. (See
"Group or Sponsored Arrangements.")
NEVLICO expects that revenues from the sales charge will fall short of
covering total distribution expenses. NEVLICO will realize a gain if the
minimum death benefit risk charge or the mortality and expense risk charge is
more than sufficient to cover its actual cost of such death benefit and
expense commitments. Any such excess may be used to cover distribution costs.
MINIMUM DEATH BENEFIT RISK CHARGE. NEVLICO charges 1.2% of the basic premium
to provide for the possibility that the insured will die at a time when the
Variable Death Benefit would be less than the Guaranteed Minimum Death Benefit
of the Policy.
STATE PREMIUM TAX CHARGE. NEVLICO deducts 2% of the basic premium to cover
state premium taxes. These taxes vary from state to state and the 2% rate is
an average.
EXAMPLE: The following shows what amount of net annual premium would be put
into the sub-accounts of the Variable Account at the start of each policy year
for the Policy shown in Appendix A under ILLUSTRATIONS OF DEATH BENEFITS, CASH
VALUES AND ACCUMULATED PREMIUMS.
<TABLE>
<CAPTION>
MALE ISSUE AGE 25 MALE ISSUE AGE 40
$500 ANNUAL PREMIUM $1,000 ANNUAL PREMIUM
BEGINNING OF $40,969 $39,549
POLICY YEAR FACE AMOUNT FACE AMOUNT
------------ ------------------- ---------------------
<S> <C> <C>
1st............................ $213.73 $602.70
2nd through 4th................ 394.32 818.32
Thereafter..................... 428.46 859.52
</TABLE>
CHARGES AGAINST THE NEW ENGLAND ZENITH FUND AND THE SUB-ACCOUNTS OF THE
VARIABLE ACCOUNT
Charges for investment advisory expenses, SEC registration expenses,
independent trustees' compensation and fees of legal counsel to the
independent trustees are deducted from the assets of the New England Zenith
Fund. (See "Investment Management" and Appendix A.)
NEVLICO charges the sub-accounts of the Variable Account for the mortality
and expense risks NEVLICO assumes. The charge is made daily at an effective
annual rate of .35% of the value of each sub-account's assets that come from
Variable Life Insurance Policies. The mortality risk NEVLICO assumes is that
insureds may live for shorter periods of time than NEVLICO estimated. The
expense risk NEVLICO assumes is that NEVLICO's costs of issuing and
administering Policies may be more than NEVLICO estimated.
If all the money NEVLICO collected from this charge is not needed to cover
death benefits and expenses, the money will be contributed to NEVLICO's
general account. Conversely, even if the money NEVLICO collects is
insufficient, NEVLICO will provide for all death benefits and expenses.
In the future, if appropriate, NEVLICO will impose a charge for certain
income taxes incurred in connection with the Variable Account. (See "Charge
for NEVLICO's Income Taxes".)
COST OF INSURANCE CHARGES
The cost of providing insurance protection for a Policy is deducted on the
last day of each policy month. A prorated charge for the cost of insurance
protection is deducted on the date the Policy is surrendered, if it is other
than the last day of a Policy month. (See Appendix C and Appendix D.)
GUARANTEE OF PREMIUMS AND CERTAIN CHARGES
NEVLICO guarantees, and may not increase, the amount of the premiums,
charges deducted from premiums and charges to the sub-accounts of the Variable
Account for mortality and expense risks. For a discussion of the extent to
which the cost of providing insurance protection is guaranteed, reference
should be made to Appendix D.
GROUP OR SPONSORED ARRANGEMENTS
Policies may be purchased under group or sponsored arrangements, as well as
on an individual basis. A "group arrangement" includes a program under which a
trustee, employer or similar entity purchases individual Policies covering a
group of individuals on a group basis. A "sponsored arrangement" includes a
program under which an employer permits group
13
<PAGE>
solicitation of its employees or an association permits group solicitation of
its members for the purchase of Policies on an individual basis.
The charge for sales load described in "Charges Deducted From Premiums" may
be reduced for Policies issued in connection with group or sponsored
arrangements. NEVLICO will reduce the sales charge in accordance with its
rules in effect as of the date an application for a Policy is approved. To
qualify for such a reduction, a group or sponsored arrangement must satisfy
certain criteria as to, for example, size and number of years in existence.
Generally, the sales contacts and effort per Policy vary based on such factors
as the size of the group or sponsored arrangement, its stability as indicated
by its term of existence, the purposes for which Policies are purchased and
certain characteristics of its members. The amount of reduction and the
criteria for qualification will reflect the reduced sales effort resulting
from sales to qualifying groups and sponsored arrangements.
NEVLICO may modify from time to time on a uniform basis, both the amounts of
reductions and the criteria for qualification. In no event, however, will
group or sponsored arrangements established for the sole purpose of purchasing
Policies, or which have been in existence for less than six months, qualify
for such reductions. Reductions in these charges will not be unfairly
discriminatory against any person, including the affected Policy Owners and
all other Policy Owners of Policies funded by the Variable Account.
In 1983 the United States Supreme Court held that certain insurance
policies, the benefits under which vary based on sex, may not be used to fund
certain employer-sponsored benefit plans and fringe benefit programs.
Therefore, NEVLICO offers Policies which do not vary based on sex for use in
connection with certain employer-sponsored benefit plans and fringe benefit
programs. NEVLICO recommends that any employer proposing to offer the Policies
to employees under a group or sponsored arrangement consult his or her
attorney before doing so. (See Appendix D.)
PRINCIPAL POLICY FEATURES
The benefits payable under the Variable Life Insurance Policies sold by
NEVLICO are funded by NEVLICO's Variable Account. Premiums paid, net of
certain deductions, are allocated to one or more of the Variable Account's
five sub-accounts, each of which invests, in turn, in the shares of a distinct
portfolio of the New England Zenith Fund. Policies are non-participating
policies and have no right to share in NEVLICO's earnings or surplus.
NET INVESTMENT EXPERIENCE
For the purpose of calculating Variable Death Benefits, the net investment
experience of a Policy's Sub-Accounts is determined as of each Monthly
Valuation Date, and for the purpose of calculating cash values, is determined
as of each day the New York Stock Exchange is open for trading. (See "How does
the death benefit vary?", and "How does the cash value vary?") For both
purposes, the calculation is made as of the closing of the New York Stock
Exchange (currently 4:00 p.m. New York City time) on the day as of which the
calculation is made. A sub-account's net investment experience for any period
equals the investment experience of the underlying New England Zenith Fund
shares for the same period, reduced by the amount of the charges against the
sub-account for such period. The investment experience of the underlying New
England Zenith Fund shares is the increase or decrease in the net asset value
(which takes into account the amount of advisory fees charged against the
Fund) of such shares during the period, increased by the amount of any
dividends or capital gains distributions on such shares during the period.
Such dividends and distributions will be reinvested in New England Zenith Fund
shares and will thereby affect subsequent investment experience. Charges
against the Policy's Sub-Accounts initially will be made only for the
mortality and expense risks NEVLICO assumes. In the future, NEVLICO will also
impose a charge against the sub-accounts for income taxes, if appropriate.
(See "Charges Against the New England Zenith Fund and the Sub-Accounts of the
Variable Account" and "Charge for NEVLICO's Income Taxes".)
DEATH BENEFIT
Subject to the adjustments referred to below, the death benefit will equal
the greater of the Variable Death Benefit and the Guaranteed Minimum Death
Benefit as of the date of death of the insured. Whether a Policy's Variable
Death Benefit is higher than the Guaranteed Minimum Death Benefit depends on
the net investment experience of the Policy's Sub-Accounts. (See Appendix A.)
14
<PAGE>
The amount of death benefit actually paid to the insured's beneficiary will
be: (i) reduced by any outstanding policy loan plus accrued interest; (ii)
reduced by the pro rata portion of any unpaid premium to the date of death if
death occurs during the grace period; (iii) increased by the pro rata portion
of any premium paid for a period beyond the date of death; and (iv) increased
by any additional benefit payable under a Rider if so provided in the Rider.
(See "Variable Death Benefit", "Loan Provision", "Premium", "Additional
Benefits by Rider" and "Limits On NEVLICO's Right to Challenge the Policy".)
The death benefit will reflect any adjustments necessary as a result of: (i)
misstatement of the insured's age or sex made in the application for
insurance; (ii) the insured's suicide within two years from the Policy's date
of issue (or less as required by the applicable state law); (iii) exercise of
NEVLICO's right to challenge the validity of the Policy within two years from
the date of issue; or (iv) any limits imposed by rider on the amount of death
proceeds payable under a Policy. (See "Limits to NEVLICO's Right to Challenge
the Policy".) (See "Misstatement of Age or Sex" and "Suicide".)
Interest will be paid from the date of death to the date of payment at a
rate determined each year by NEVLICO in accordance with applicable state law.
(See "Payment Options" and "Payment of Proceeds".)
GUARANTEED MINIMUM DEATH BENEFIT
The Guaranteed Minimum Death Benefit equals the initial face amount
specified in a Policy, regardless of the investment experience of the Policy's
Sub-Accounts, assuming premiums have been paid when due and there is no
outstanding policy loan.
VARIABLE DEATH BENEFIT
The Variable Death Benefit reflects all past net investment experience of
the Policy's Sub-Accounts. In the first policy month, a Policy's Variable
Death Benefit equals the initial face amount specified in the Policy. After
the first policy month for the Policy of a male insured in a standard risk
classification, the Policy's Variable Death Benefit will not change if the net
investment experience of the Policy's Sub-Accounts is the monthly equivalent
of 4% per year. If the net investment experience of the Policy's Sub-Accounts
exceeds the monthly equivalents of 4% per year, the Policy's Variable Death
Benefit will increase: if the net investment experience of the Policy's Sub-
Accounts for any month is less than 4% per year, the Policy's Variable Death
Benefit will decrease. (See "Net Investment Experience".) The amount by which
the Variable Death Benefit will increase or decrease for any month is the
amount of paid-up life insurance which the dollar amount of such excess or
shortfall in net investment experience would purchase at net single premium
rates described in the Policy for the insured's age. (See Appendix B.) The
amount of increase or decrease will be more favorable for the Policy of a
preferred risk or (except in the case of a non-sex-based Policy) female
insured than for the comparable Policy of a standard risk male insured. (See
Appendix B and Appendix D.)
A Policy's Variable Death Benefit is determined monthly as of the Policy's
Monthly Valuation Date. Once determined, the Variable Death Benefit for a
Policy remains the same for the following policy month. The Policy Owner
foregoes any increase and avoids any decrease in the Variable Death Benefit
until the next Monthly Valuation Date. (See "How does the death benefit
vary?")
The Variable Death Benefit for a Policy is cumulative. Increases and
decreases in the Variable Death Benefit are carried into each succeeding
policy month. The Variable Death Benefit for a Policy can be higher or lower
than the Guaranteed Minimum Death Benefit. If the Variable Death Benefit is
higher than the Guaranteed Minimum Death Benefit, further net investment
experience by the Policy's Sub-Accounts at annual rates in excess of 4% will
produce a larger Variable Death Benefit. If the Variable Death Benefit is
lower than the Guaranteed Minimum Death Benefit, subsequent net investment
experience by the Policy's Sub-Accounts at annual rates in excess of 4% must,
in most cases, first offset the amount by which the Variable Death Benefit is
lower than the Guaranteed Minimum Death Benefit: the Variable Death Benefit
will then become higher than the Guaranteed Minimum Death Benefit if the
Policy's Sub-Accounts experience further subsequent net investment experience
at annual rates in excess of 4%.
EXAMPLE: Using the Policy illustrated on page 33 assume a hypothetical
constant gross annual rate of return for the Policy's Sub-Accounts of 0% for
the first 5 policy years. This results in a Variable Death Benefit below the
Guaranteed Minimum Death Benefit. Net investment experience at a constant
annual rate of approximately 16.5% in the 6th policy year would be necessary
to offset the amount by which the Variable Death Benefit is lower than the
Guaranteed Minimum Death Benefit so that they would be equal at the end of
that year. Any subsequent net investment experience at an annual rate in
excess of 4% would produce a Variable Death Benefit higher than the Guaranteed
Minimum Death Benefit.
15
<PAGE>
A rate greater than 16.5% in the 6th policy year would not be necessary to
offset the amount by which the Variable Death Benefit is lower than the
Guaranteed Minimum Death Benefit. This is because during each policy year,
regardless of net investment experience, the amount provided for investment in
the Policy's Sub-Accounts increases by the amount of net premiums paid; by the
6th policy year the rate of net investment experience applies to a larger
amount provided for investment than it does in the first 5 policy years. Thus,
the 16.5% rate is applied to a larger amount provided for investment in the
6th policy year than is the 0% rate in the first 5 policy years.
The amount of the Variable Death Benefit below the Guaranteed Minimum Death
Benefit also could be offset over a long period of time. Thus, if the gross
investment experience in the first 5 policy years was at a constant annual
rate of 0%, net investment experience at a constant annual rate of
approximately 5.8% in each of the 5 following policy years would be required
to produce a Variable Death Benefit larger than the Guaranteed Minimum Death
Benefit by the end of the 10th policy year.
In any given policy month, the greater the amount provided for investment in
a Policy's Sub-Accounts, the greater the effect net investment experience will
have on the Variable Death Benefit. (See "Amount Provided for Investment in a
Policy's Sub-Accounts".) In early policy years, sales load deductions from
premiums are larger than in later policy years, so the net premiums provided
for investment will be greater in later policy years than in early policy
years. If, as is likely assuming no policy loans or partial surrenders, the
total amount provided for investment in a Policy's Sub-Accounts is indeed
greater in later policy years than in early policy years, net investment
experience in later policy years will have a greater effect on the Variable
Death Benefit. This effect will at least partially be offset by the fact that
the net single premium rates used for converting investment experience into
increases or decreases in the Variable Death Benefit as described above, rise
as the insured grows older. (See Appendix B.)
EXAMPLE: Assume the Policy illustrated on page 33 is in force and premiums
are paid to the date of death with no policy loan. Assuming a hypothetical
constant gross annual rate of return for the Policy's Sub-Accounts of 8%
(equivalent to net investment experience at a constant annual rate of 7.12%),
the Variable Death Benefit at the end of policy year 6 is .93% higher than the
Variable Death Benefit at the end of policy year 5. The Variable Death Benefit
at the end of policy year 20 would be 2.63% higher than the Variable Death
Benefit at the end of policy year 19 as follows:
<TABLE>
<S> <C>
Variable Death Benefit at end of policy year 19 ........... $51,922
Increase in Variable Death Benefit.......................... $ 1,364
(2.63% increase)
Variable Death Benefit at end of policy year 20 ........... $53,286
</TABLE>
Any increase in the Variable Death Benefit will not bear a dollar-for-dollar
relationship to the net investment experience of the Policy's Sub-Accounts.
(See Appendix B.) Nor will any Variable Death Benefit increase necessarily be
related to inflation rates. There is no guarantee that net investment
experience will be sufficient to result in an increase in the Variable Death
Benefit. The amount of the Variable Death Benefit will be affected by the
premium payment schedule chosen. (See "Premiums".) As stated above, the death
benefit paid will never be less than the Guaranteed Minimum Death Benefit, as
long as premiums have been paid when due and there is no outstanding policy
loan.
AMOUNT PROVIDED FOR INVESTMENT IN A POLICY'S SUB-ACCOUNTS
An amount is first provided for investment in a Policy's Sub-Accounts as of
the "investment start date", which is the latest of the date NEVLICO receives
a premium payment for the Policy, the date Part II of the Policy application
is signed and the policy date. If a premium payment has been made with the
application, the policy date is the later of the date Part II of the
application has been signed and receipt of the premium, and, in such cases, is
the same as the investment start date. In such cases, the amount provided for
investment is generally equal to the Policy's first net premium for future
insurance coverage.
The insured is covered under the terms of a temporary insurance agreement
during any period between (i) the date by which NEVLICO receives both a
premium payment for the Policy and Part II of the application and (ii) the
date variable life insurance coverage commences. The temporary insurance
agreement provides insurance coverage in limited amounts, depending on the
amount of insurance applied for and the risk classification of the insured.
The maximum amount of coverage available under the agreement for a standard or
preferred risk is $500,000 or the amount of insurance applied for, if less.
The maximum coverage available under the agreement for a substandard risk is
the lesser of $250,000 and the amount of insurance applied for. The maximum
coverage available if the insured is determined to be uninsurable is $50,000.
Coverage under the agreement terminates on the earliest of: (i) the date the
variable life policy is delivered to the applicant and any balance of
16
<PAGE>
premium then due is paid; (ii) the date on which NEVLICO notifies the
applicant of termination of the agreement and refunds the premium paid, and
(iii) 60 days after the date Part II of the Policy application is signed. If a
Policy is issued and accepted, cost of insurance charges will accrue from the
policy date even if the Policy issuance was delayed due to underwriting
requirements, will be deducted at the end of each policy month, and will be in
amounts based on the face amount of the Policy issued, regardless of the
limitations on coverage under the temporary insurance agreement. Upon
declining an application, NEVLICO will refund the premium payment made.
If the initial premium is to be paid upon delivery of the Policy, the Policy
will be issued with a policy date which is generally five days after issue.
The investment start date will be the later of the policy date and the date
the premium is received. Monthly cost of insurance deductions will accrue from
the policy date. Interest at a 4% rate will be credited to the Policy for the
period, if any, between the policy date and the investment start date.
Insurance coverage will begin upon receipt of the premium.
Under limited circumstances, NEVLICO may backdate a policy, upon request, by
deeming the policy date earlier than the date the application is signed. For a
backdated policy, an additional amount is provided for investment on the
investment start date. The additional amount equals the net premiums payable
for the period prior to the investment start date, minus accumulated cost of
insurance deductions, plus interest on such adjusted net premiums at 4%.
On any subsequent premium due date, the amount provided for investment is
the sum of the net cash value on that date, calculated as if premiums were
paid to but not including that date, plus the net premium for the premium
payment interval beginning on that date; plus, after being credited to the
Policy's Sub-Accounts, any interest accrued in NEVLICO's general account on
the amount of a policy loan. (See "What is the relationship between the
premium and the amount allocated to the sub-accounts of the Variable Account?"
and "Loan Provision".) As of each day the New York Stock Exchange is open for
trading ("Valuation Date"), the amount provided for investment in a Policy's
Sub-Accounts will be adjusted to reflect the net investment experience of
those sub-accounts for that day.
CASH VALUE OF THE POLICY
AMOUNT OF NET CASH VALUE. The cash value of a Policy for a given day is
equal to the net premiums accumulated to the given day for the Policy; plus or
minus any accumulated net investment experience for the Policy adjusted
through the given day; plus any interest payable by NEVLICO on amounts
transferred to its general account as a result of a policy loan; minus any
uncollected amount of the first year administrative charge; minus accumulated
deductions for the cost of insurance. The cost of insurance is deducted from
the cash value on the last day of each policy month, and a prorated charge for
the cost of insurance protection is deducted on the date the Policy is
surrendered, if it is other than the last day of the policy month.
The net cash value is the amount which the Policy Owner may obtain upon
surrender of the Policy. The net cash value for a Policy is its cash value on
the date of surrender minus any outstanding policy loan and accrued interest.
(See "What is the relationship between the premium and the amount allocated to
the sub-accounts of the Variable Account?", "Premiums", "Charges Deducted from
Premiums", Appendix C--"How the Amount Provided for Investment in a Policy's
Sub-Accounts Relates to Net Cash Value" and Appendix D.) The amount payable
upon surrender will also include the value of any additional benefit provided
by the rider if so provided in the rider.
The net cash value of a Policy may increase or decrease between Valuation
Dates, depending on the net investment experience of the Policy's Sub-
Accounts. The net cash value for a substandard risk Policy is the same as for
a comparable standard risk Policy. It is unlikely that a Policy for which
premiums are paid more frequently than annually will have a net cash value
during the early part of the first policy year because of the first year
uncollected administrative expense charges. It is possible, because of
unfavorable net investment experience of a Policy's Sub-Accounts, for such
Policy's net cash value to be reduced to zero. The Policy Owner bears the
entire risk for such a reduction since there is no guaranteed minimum cash
value.
Net cash value will be affected by the premium payment schedule chosen. (See
"Premiums".)
The determination of the cash value for a Policy continued as Paid-Up or
Extended Term Insurance will differ from that described above. (See "Default
and Lapse Options".)
SURRENDER. A Policy may be surrendered in whole or in part for its net cash
value while the insured is living. Surrendering a Policy in part involves
splitting a Policy into two Policies: one is surrendered for its net cash
value; the other is continued in force. The continued Policy continues at the
original Policy's premium rates and must have a face amount of at least
$25,000. For certain group or sponsored arrangements, the minimum face amount
required may be reduced.
17
<PAGE>
To surrender a Policy in whole, the Policy Owner must send a written
request, signed by the Policy Owner, to NEVLICO's Principal Administrative
Office. To surrender a Policy in part, the Policy Owner must send a written
request, signed by the Policy Owner, together with the Policy to NEVLICO's
Principal Administrative Office. The net cash value of a surrender Policy will
be determined as of the date of receipt of the necessary documentation at
NEVLICO's Principal Administrative Office. (See "Payment of Proceeds".)
LOAN PROVISION
The discussion which follows assumes that premiums have been paid when due.
LOAN CONDITIONS. A Policy Owner may borrow all or part of the Policy's "loan
value" at any time; however, in the first policy year NEVLICO's consent is
required. The amount available to be borrowed at any time is equal to the loan
value less any outstanding policy loan and accrued interest. Policy loans may
not be made if a Policy is being continued as Extended Term Insurance. The
Policy will be security for the policy loan. NEVLICO will make a policy loan
as of the policy loan date--the date as of which a loan request is received at
NEVLICO'S Principal Administrative Office. (See "When are communications and
payments deemed received at NEVLICO's Principal Administrative Office?")
The Policy's loan value is equal to 90% of the Policy's cash value, as of
the date of receipt of the loan request at NEVLICO's Principal Administrative
Office, (i) projected (assuming a constant annual rate of return of 4%) to the
next policy anniversary or premium due date, whichever is earlier and (ii)
discounted at the interest rate actually charged on the policy loan. If the
Policy is being continued as Paid-Up Insurance, the Policy Owner may borrow up
to the amount of the cash value on the next anniversary minus interest at 5% a
year. A fixed loan interest rate of 5% per year is charged on policy loans,
accrues daily, and is due on premium anniversaries. Any interest remaining
unpaid when due will be added to the outstanding policy loan. (See "Payment of
Proceeds".)
EXAMPLE: Assume the Policy illustrated on page 33 is in force and premiums
have been paid when due. Assume a constant 8% hypothetical gross annual rate
of return for the Policy's Sub-Accounts (which equals a net investment
experience at a constant annual rate of 7.12%). After the premium payment on
the 10th policy anniversary, the maximum amount that could be borrowed would
be determined as follows under (i) an annual premium payment schedule and (ii)
a quarterly premium payment schedule:
<TABLE>
<CAPTION>
ANNUAL QUARTERLY
------ ---------
<C> <S> <C> <C>
(1) Cash Value After Premium Payment on 10th
Policy Anniversary............................ $10,266.88 $9,494.21
(2) Cash Value Projected at a Constant Annual Rate
of Return of 4% to the
(a) 11th Policy Anniversary................... 10,406.49
(b) Next Premium Due Date..................... 9,518.33
(3) Projected Cash Value Discounted at a Constant
Annual Rate of 5% to the 10th Policy
Anniversary:................................. 9,910.94 9,400.82
(4) Maximum Amount Borrowable: 90% of the
Discounted Projected Cash Value............... 8,919.85 8,460.74
</TABLE>
A Policy Owner may elect an automatic premium loan option. Under this
option, if a scheduled premium has not been paid by the end of the grace
period, the Policy's loan value will be used to pay the scheduled premium to
the next quarterly due date. If the unpaid premium is an annual or semiannual
premium, it will be paid in full if possible. No premium will be paid if the
Policy's loan value is not sufficient to pay a premium to the next quarterly
due date. Loan interest will be charged on automatic premium loans from the
due date of the premium. Automatic premium loans will be available to a Policy
Owner as of the premium due date after receipt of the written request for such
automatic premium loans at NEVLICO's Principal Administrative Office. (See
"When are communications and payments deemed received at NEVLICO's Principal
Administrative Office?")
EFFECT OF POLICY LOAN. A policy loan does not affect the amount of the
premiums due. The amount provided for investment in a Policy's Sub-Account is
reduced by the amount of a policy loan, as of the date of the policy loan.
Repayment of the policy loan causes this amount provided for investment to
increase by the amount of the repayment, as of the date of the repayment. (See
"When are communications and payments deemed received at NEVLICO's Principal
Administrative Office?") NEVLICO attributes a policy loan to the Policy's Sub-
Accounts in proportion to the amount then provided for investment in each such
Sub-Account, unless the Policy Owner requests otherwise. Similarly, NEVLICO
attributes repayment of a policy loan to the Policy's Sub-Accounts in
proportion to the amount then provided for investment in each, unless the
Policy Owner requests otherwise.
18
<PAGE>
The amount removed from the Policy's Sub-Accounts as a result of a policy
loan will earn interest at 4%, which will be credited to the Policy's Sub-
Accounts annually in proportion to the Policy's cash value in each such Sub-
Account as of the date of crediting.
EXAMPLE: Assume the Policy illustrated on page 33 is in force and premiums
are paid when due with no policy loan. Assume a constant 8% hypothetical gross
annual rate of return for the Policy's Sub-Accounts (which equals a net
investment experience at a constant annual rate of 7.12%). If the insured
takes a policy loan for $2,000 at the end of the 5th policy year, it will
affect the Variable Death Benefit and cash value (before subtracting the
amount of the policy loan with loan interest) at the end of the 6th policy
year as follows:
<TABLE>
<CAPTION>
WITHOUT POLICY LOAN WITH POLICY LOAN
------------------- ----------------
<S> <C> <C>
Variable Death Benefit............. $40,818.94 $40,656.63
Cash Value......................... 4,841.44 4,779.26
</TABLE>
The difference results from the fact that the portion of cash value equal to
the amount of policy loan is transferred from the Variable Account to the
general account. The net annual return on the amount transferred is reduced to
4% a year, rather than the Variable Account's annual net investment experience
of 7.12%.
The amount removed from the Policy's Sub-Accounts as a result of a policy
loan is not affected by the investment experience of those sub-accounts from
which the amount provided for investment was withdrawn. Therefore, the
Variable Death Benefit and the net cash value can be permanently affected by
the existence of any policy loan, whether or not repaid in whole or in part.
The amount of any outstanding policy loan, plus interest accrued thereon, is
subtracted from the amount otherwise payable when the Policy proceeds become
payable.
If a policy loan plus accrued interest exceeds the Policy's cash value,
NEVLICO will notify the Policy Owner of pending termination. The Policy will
terminate 31 days after such notice has been mailed, unless NEVLICO has
received repayment of the excess amount. (See "When are communications and
payments deemed received at NEVLICO's Principal Administrative Office?") If
the insured dies after notice but before expiration of the 31-day period.
NEVLICO will pay the beneficiary the death benefit proceeds. (See "Death
Benefit".)
PAYMENT OF PROCEEDS
As long as a Policy is in effect other than as Extended Term or Paid-Up
Insurance and assuming that the Policy is not being contested. NEVLICO will
ordinarily pay any net cash value, policy loan or death benefit proceeds
within 7 days after receipt at NEVLICO's Principal Administrative Office of a
signed request for surrender of a Policy, a request to make a policy loan or
proof of death of the insured, respectively, in a form satisfactory to
NEVLICO. (See "When are communications and payments deemed received at
NEVLICO's Principal Administrative Office?" and "Limits to NEVLICO's Right to
Challenge the Policy".) However, NEVLICO reserves the right to suspend or
postpone the payment of such proceeds for any period: (i) when the New York
Stock Exchange is closed for trading, (ii) when the Securities and Exchange
Commission determines that a state of emergency exists which may make payment
or transfer impractical or (iii) at any other time when the New England Zenith
Fund may, under applicable laws and regulations, suspend payment on the
redemption of its shares.
If a Policy is in effect as Extended Term or Paid-Up Insurance, NEVLICO
expects to pay any cash value promptly. However, NEVLICO has the right to
delay payment of the net cash value of such insurance for up to 6 months.
NEVLICO will pay interest of not less than 3.5% a year if it delays such a
payment for 30 days or more.
If a Policy is in force as Paid-Up Insurance, NEVLICO can postpone the
making of any policy loan (other than policy loans to pay premiums on policies
issued by NEVLICO) for not more than 6 months from the date application for a
policy loan is made.
The payee may elect to receive death benefit or cash value proceeds in a
lump sum or under other payment options. (See "Payment Options".)
PREMIUMS
PAYMENT PERIOD AND FREQUENCY. Premiums are payable on due dates during the
lifetime of the insured for the period specified in the Policy. Insureds under
25 years of age at issue pay premiums for 40 years; those from ages 25 to 40
at issue pay premiums to age 65; and those above 40 years of age at issue pay
premiums for 25 years. The Policy Owner selects the schedule of premium
payments--quarterly, semiannual, annual or, if agreed to by NEVLICO,
otherwise. Variable Death Benefits
19
<PAGE>
and cash values will vary depending on the schedule of premium payments
chosen. For example, a Policy Owner who pays an annual premium at the
beginning of the policy year will experience a larger dollar amount of net
investment experience (whether favorable or unfavorable) by the end of the
policy year than a Policy Owner who pays quarterly premiums. (See "Net
Investment Experience" and "Amount Provided for Investment in a Policy's Sub-
Accounts".) When premiums are paid more frequently than annually, the
aggregate premiums for a policy year are higher than otherwise, reflecting a
charge for additional administrative expenses and the loss of interest. (See
"Charges Deducted from Premiums".)
EXAMPLE: Assume the Policy illustrated on page 33 is in force and premiums
are paid when due with no policy loan. Assuming a hypothetical constant gross
annual rate of return for the Policy's Sub-Accounts of 4% (equivalent to a net
investment experience at a constant annual rate of 3.16%), the death benefit
and net cash value at the end of the 5th policy year would be:
Death
Benefit: $39,549
Net Cash
Value: 3,430
If, instead of paying annual premiums of $1,000, the Policy Owner paid
quarterly premiums of $254.54 for the same face amount of $39,549, values at
the end of the 5th policy year would be:
Death
Benefit: $39,549
Net Cash
Value: 3,439
Assuming a hypothetical constant gross annual rate of return of 8%
(equivalent to a net investment experience at a constant annual rate of
7.12%), values for the two Policies at the end of the 5th policy year would
be:
<TABLE>
<CAPTION>
$1,000 $254.54
ANNUAL PREMIUM QUARTERLY PREMIUM
-------------- -----------------
<S> <C> <C>
Death Benefit $40,444 $40,305
Net Cash Value 3,847 3,792
</TABLE>
Assuming a hypothetical constant gross annual rate of return of 0%
(equivalent to a net investment experience at a constant annual rate of -
.81%), values for the two Policies at the end of the 5th policy year would be:
<TABLE>
<CAPTION>
$1,000 $254.54
ANNUAL PREMIUM QUARTERLY PREMIUM
-------------- -----------------
<S> <C> <C>
Death Benefit $39,549 $39,549
Net Cash Value 3,051 3,115
</TABLE>
A Policy Owner can change the schedule of premium payments at any time. A
change to a schedule of less than frequent premium payments (e.g., from
quarterly to annual) will become effective after receipt of the request for
change at NEVLICO's Principal Administrative Office as of the next premium due
date under the newly requested premium payment schedule. A change to a
schedule of more frequent premium payments (e.g., from annual to quarterly)
will become effective after receipt of the request for change at NEVLICO's
Principal Administrative Office as of the next premium due date under the
original premium payment schedule. (See "When are communications and payments
deemed received at NEVLICO's Principal Administrative Office?")
A change of premium payment schedule will affect the Variable Death Benefit
and cash value of the Policy. During any period when the Policy's net
investment experience exceeds a 4% annual rate, change to a schedule of less
frequent premium payments (e.g., from quarterly to annual) will tend to cause
the Variable Death Benefit and cash value to increase more in periods
subsequent to the change than they otherwise would. During such a period,
change to a schedule of more frequent premium payments (e.g., from annual to
quarterly) will tend to cause the Variable Death Benefit and cash value to
increase less in periods subsequent to the change than they otherwise would.
The reverse will be true during any period when the Policy's net investment
experience is less than an annual rate of 4%. During any period when the
Policy's net investment experience equals an annual rate of 4%, change to a
different premium payment schedule will have a minimal effect on the Policy's
Variable Death Benefit and cash value.
Generally, premiums may be paid by automatic premium loans. (See "Loan
Provision".)
Premiums are payable at NEVLICO's Principal Administrative Office or at any
NEVLICO agency on or before their due dates. Net premiums, after the first,
will be credited to a Policy's Sub-Accounts on the premium due dates.
20
<PAGE>
LEVEL PREMIUMS. For a Policy in a substandard risk classification, extra
premiums are payable. Otherwise, premiums are fixed and level and do not vary
with the investment experience of the Policy's Sub-Accounts. The level gross
premiums act as an averaging device to cover expenses other than the cost of
insurance, which are highest in the early policy years, and the cost of the
mortality risk, which increases with age. Thus, in the early policy years
premiums are higher than needed to pay death claims, while in later years
premiums are less than required to pay the death claims. Accordingly, the
assets allocated to the Policy's Sub-Accounts in the early policy years are
used in part to support the expected death claims in those years, with the
balance accumulated as a reserve to help pay the death claims in the later
policy years. Also, assets are allocated to NEVLICO's general account to
accumulate as a reserve to cover the contingency that the insured will die at
a time when the Guaranteed Minimum Death Benefit exceeds the death benefit
which would have been payable in the absence of such guarantee. In setting its
premium rates, NEVLICO took into consideration actuarial estimates of death
and surrender benefits, lapses, expenses, general account investment
experience and an amount to be contributed to NEVLICO's surplus.
ILLUSTRATIONS OF PREMIUM RATES. The following tables show premiums for
certain face amounts.
$25,000 FACE AMOUNT POLICY
(Other Than Substandard Risk)
<TABLE>
<CAPTION>
(D)
(C) PERCENTAGE
SUM OF DIFFERENCE
AGE AT (A) (B) FOUR QUARTERLY BETWEEN
ISSUE ANNUAL PREMIUM QUARTERLY PREMIUM PREMIUMS (A) AND (C)
------ -------------- ----------------- -------------- -----------
<S> <C> <C> <C> <C>
25 $ 318.75 $ 81.80 $ 327.20 2.65%
40 645.00 164.53 658.12 2.03
$100,000 FACE AMOUNT POLICY
(Other Than Substandard Risk)
<CAPTION>
(D)
(C) PERCENTAGE
SUM OF DIFFERENCE
AGE AT (A) (B) FOUR QUARTERLY BETWEEN
ISSUE ANNUAL PREMIUM QUARTERLY PREMIUM PREMIUMS (A) AND (C)
------ -------------- ----------------- -------------- -----------
<S> <C> <C> <C> <C>
25 $1,170.00 $297.65 $1,190.60 1.76%
40 2,475.00 628.65 2,514.24 1.59
</TABLE>
CONVERSION FROM TERM INSURANCE. Upon the conversion from certain term
insurance issued by The New England to a Policy, the Policy Owner will receive
a credit toward the premium payable on the Policy. The credit will be an
amount equal to the lesser of 25% of the Policy's initial premium and: (i) 80%
of the term premium paid to the effective date of the conversion, if the
conversion takes place more than 120 days after the term insurance is issued,
up to and including the first policy anniversary; (ii) 80% of the first year
term premium, if the conversion takes place during the second policy year; and
(iii) 100% of the term premium on the policy anniversary prior to the
conversion if the conversion takes place on or after the second policy
anniversary. The conversion is subject to payment of the premium on the
Policy, less the amount of the conversion credit.
INVESTMENT OPTION
The Policy Owner has the option to allocate net premiums among the sub-
accounts of the Variable Account in any combination. Any portion of a net
premium allocated to one of the Policy's Sub-Accounts must be at least 10% of
the net premium on the date the allocation takes effect. Percentages allocated
must be in whole numbers. The initial election must be made by the Policy
Owner at the time of completion of the application for the Policy. The Policy
Owner may thereafter change the election at any time. The reallocation will be
effective as to any net premiums applied on or after the date of receipt at
NEVLICO's Principal Administrative Office of written notice signed by the
Policy Owner of the change of election in a form satisfactory to NEVLICO. (See
"When are communications and payments deemed received at NEVLICO's Principal
Administrative Office?")
TRANSFER OPTION
The Policy Owner may redistribute the amount provided for investment in the
Policy's Sub-Accounts up to four times in a policy year without NEVLICO's
consent. All sub-account transfer requests made at the same time will be
treated as a single
21
<PAGE>
redistribution and will be effective at net asset value as of the date of
receipt of the transfer request at NEVLICO's Principal Administrative Office.
(See "When are communications and payments deemed received at NEVLICO's
Principal Administrative Office?")
The Policy Owner may request a transfer by written request to NEVLICO's
Principal Administrative Office or by telephoning New England Securities. To
request a transfer by telephone, the Policy Owner should contact his or her
registered representative or contact New England Securities at 1-800-442-4096
(inside Massachusetts) or 1-800-451-5004 (outside Massachusetts). NEVLICO and
New England Securities are not responsible for the authenticity of transfer
instructions received by telephone.
DEFAULT AND LAPSE OPTIONS
A premium unpaid as of its due date is in default, but the Policy provides
for a 31-day grace period for the payment of each premium after the first. The
insurance continues in full force during the grace period but, if the insured
dies during the grace period, a pro rata portion of the unpaid premium to the
date of death will be deducted from the amount otherwise payable.
For 60 days after the due date of a Policy's premium in default, NEVLICO
will not make the usual cost of insurance deductions from the Policy's cash
value. Therefore, during this period, such Policy's cash value will not be
less than its cash value on the premium due date plus or minus the Policy's
share of the net investment experience of the Policy's Sub-Accounts from the
premium due date to the date of calculation. If the premium in default is
paid, retroactive cost of insurance deductions will be made.
If the Policy is in a standard or preferred risk classification, any net
cash values determined generally will be applied as of the due date of the
premium in default as Extended Term Insurance--fixed benefit life insurance
for a limited term with no further premiums due--unless the Policy Owner
elects Paid-Up Insurance--fixed benefit permanent life insurance with no
further premiums due. The Policy Owner can make or change his election by a
written request at NEVLICO's Principal Administrative Office within 60 days
after the due date of the premium in default. (See "When are communications
and payments deemed received at NEVLICO's Principal Administrative Office?")
Whether or not a Policy Owner makes an election, (i) if the Policy's net
cash value will provide an amount of Paid-Up Insurance equal to or greater
than the amount of Extended Term Insurance available for such Policy, the net
cash value will be applied as Paid-Up Insurance and (ii) if the insured dies
within 60 days after the due date of premium in default, the lapse option
which will provide the larger death benefit will be used.
If a Policy is in a substandard risk classification, its net cash value may
be applied only as Paid-Up Insurance.
If a Policy is being continued as Paid-Up or Extended Term Insurance, the
cash value will equal the net single premium which would be required to
provide the insurance at the age of the insured on the date of valuation. For
31 days after each policy anniversary, the cash value of such a Policy will
not be less than the cash value on that anniversary.
REINSTATEMENT. The Policy may be reinstated in accordance with its terms
(including evidence of insurability satisfactory to NEVLICO and payment of the
required charges) within 7 years after the date of default in premium payments
or, with NEVLICO's consent, beyond 7 years after such date. However, if the
Policy has been surrendered for its net cash value, the Policy can be
reinstated only with NEVLICO's consent. If Extended Term Insurance is in force
and there are at least five years of the term left, proof of insurability will
not be required to reinstate the Policy, but it may be required to reinstate
riders. Reinstatement is effected by the payment of (a) any outstanding policy
loan at the time the Policy lapsed (if such policy loan is not continued in
effect under the reinstated Policy), together with (i) interest to the date of
reinstatement calculated at 5% compounded annually, if the policy loan were at
the fixed rate or (ii), if the Variable Loan Interest Rate had been in effect,
the interest that would have accrued if the Policy had not lapsed, and (b) the
greater of (i) 110% of any increase in cash value resulting from reinstatement
plus each unpaid Rider premium with 5% interest compounded annually or (ii)
all unpaid premiums plus 5% interest compounded annually.
EXCHANGE OF POLICY DURING FIRST 24 MONTHS
At any time during the first twenty-four months after the date of issue
shown in the Policy while premiums are being paid when due, the Policy Owner
may exchange the Policy without evidence of insurability for a fixed-benefit
life insurance policy. The new policy will have the same face amount, policy
date, issue age and risk classification for the insured as the Variable
22
<PAGE>
Life Insurance Policy, but will be issued by New England Mutual Life Insurance
Company. For Policies issued in New York, the Policy Owner has the option of
exchanging to a new policy with a face amount equal to the current death
benefit of the exchanged Policy. Premiums for the new policy will be based on
the premium rates for comparable fixed-benefit life insurance policies issued
by The New England which were in effect on the policy date of the original
policy. Additional benefits by rider will be available on the new policy with
the consent of The New England.
The exchange will be effective on the date of receipt of written notice at
NEVLICO's Principal Administrative Office in a form satisfactory to NEVLICO,
together with the Policy and payment to NEVLICO of any cost to exchange. (See
"When are communications and payments deemed received at NEVLICO's Principal
Administrative Office?")
The exchange shall be subject to an equitable adjustment to reflect
variances, if any, in the premiums and cash values under the Policy and the
new fixed-benefit policy. For this purpose, cash value of a Policy is
determined as of the effective date of the exchange. Any outstanding policy
loan must be repaid on or before the effective date of the exchange.
PAYMENT OPTIONS
The death benefit or net cash value proceeds of a Policy can be paid in a
lump sum, or the Policy Owner or payee can choose to apply all or a part of
the proceeds under one of the payment options described below. NEVLICO will
pay interest on the death benefit proceeds from the date they become payable
to the date of payment in a lump sum or to the effective date of the elected
payment option, as stated in the election. A combination of payment options
can be issued. Proceeds applied under a payment option will no longer be
affected by investment experience. In those states where it has been approved,
an endorsement will be added to newly issued Policies providing that the
mortality assumption used in determining payments under an option will not
vary based on sex.
(i) INCOME FOR A SPECIFIED NUMBER OF YEARS. Proceeds are paid in equal
monthly installments for up to 30 years, with interest at a rate not
less than 3.5% a year compounded yearly. Additional interest paid by
NEVLICO for any year will be added to the monthly payments for that
year.
(ii) LIFE INCOME. Proceeds are paid in equal monthly installments (i)
during the life of the payee, but not after the death of the payee,
(ii) for the longer of the life of the payee or 10 years or (iii) for
the longer of the life of the payee or 20 years.
(iii) LIFE INCOME WITH REFUND. Proceeds are paid in equal monthly
installments during the life of the payee. If, at the death of the
payee, unpaid proceeds remain, they are paid either in one sum or in
equal monthly installments until the total proceeds have been paid.
(iv) INTEREST. Proceeds are held for the life of the payee or another
agreed upon period. Interest, at a rate of not less than 3.5% a year,
is paid monthly or added to the principal annually. At the death of
the payee or at the end of the period agreed to, the balance of
principal and any accrued interest will be paid in one sum.
(v) SPECIFIED AMOUNT OF INCOME. Proceeds plus interest accrued thereon at a
rate of not less than 3.5% annually, are paid in an amount elected at
the frequency elected until total proceeds have been paid. Any of such
amounts unpaid at the death of the payee will be paid in one sum.
(vi) LIFE INCOME FOR TWO LIVES. Proceeds will be paid in equal monthly
installments (i) while either of two payees is living, (ii) for the
longer of the life of the surviving payee or 10 years or (iii) while
the two payees are living and, after the death of one payee, two-
thirds of the monthly amount for the life of the surviving payee will
be paid.
Amounts less than $2000 can be applied to a payment option only with
NEVLICO's consent. If installments under a payment option are less than $20
each. NEVLICO can change the interval of payment to 3 or 6 or 12 months in
order to increase each payment to at least $20.
ADDITIONAL BENEFITS BY RIDER
A Policy can include additional benefits that NEVLICO approves based on
NEVLICO's standards for issuing insurance and classifying risks. An additional
benefit usually requires an additional premium. An additional benefit is
provided by a rider that is
23
<PAGE>
subject to the terms of the Policy. However, rider benefits are not subject to
variation based on the net investment experience of a Policy's Sub-Accounts.
The following riders are available:
LEVEL TERM INSURANCE, which provides additional term insurance;
ACCIDENTAL DEATH BENEFIT, which provides additional insurance if death
results from accidental bodily injury;
OPTIONS TO PURCHASE ADDITIONAL LIFE INSURANCE, which provides the right
to purchase additional insurance on the life of the insured, without proof
of insurability;
WAIVER OF PREMIUMS--DISABILITY OF INSURED, which provides for waiver of
premiums for the total disability of the insured;
WAIVER OF PREMIUMS--DISABILITY OF APPLICANT, which provides for waiver of
premiums for the total disability of the person named in the rider;
WAIVER OF PREMIUMS--DEATH OF APPLICANT, which provides for waiver of
premiums for a limited period upon the death of the person named in the
rider;
WAIVER OF PREMIUMS--DEATH OR DISABILITY OF APPLICANT, which provides for
waiver or premiums for a limited period upon the death or disability of the
person named in the rider;
TEMPORARY TERM INSURANCE, which provides for insurance from the date of
issue to the policy date; and
CHILDREN'S INSURANCE, which provides insurance on the life of the
insured's children.
OTHER POLICY FEATURES
POLICY OWNER. The Policy Owner is named in the application for the Policy;
however, the Policy Owner can be changed from time to time. The new Policy
Owner will succeed to all of the rights of the former Policy Owner, including
the right to make a further change of Policy Owner. At the death of the Policy
Owner, his or her estate will be the Policy Owner, unless a successor Policy
Owner has been named. The rights of the Policy Owner will terminate at the
death of the insured, except for rights to payment of benefits.
BENEFICIARY. The beneficiary is named in the application for the Policy;
however, the beneficiary can be changed from time to time before the death of
the insured. The beneficiary has no rights in the Policy until the death of
the insured. An individual must survive the insured to qualify as beneficiary;
if none survives, the proceeds will be paid to the Policy Owner.
CHANGE OF POLICY OWNER OR BENEFICIARY. A change of Policy Owner or
beneficiary must be in written form satisfactory to NEVLICO and must be dated
and signed by the Policy Owner who is making the change. The change will be
subject to all payments made and actions taken by NEVLICO under the Policy
before the signed change form is received by NEVLICO at its Principal
Administrative Office.
ASSIGNMENTS. An absolute assignment of the Policy by the Policy Owner is a
change of Policy Owner and beneficiary to the assignee. A collateral
assignment of the Policy by the Policy Owner is not a change of Policy Owner
or beneficiary; however, their rights will be subject to the terms of the
assignment. Assignments will be subject to all payments made and actions taken
by NEVLICO before a signed copy of the assignment form is received by the
Company at its Principal Administrative Office. NEVLICO will not be
responsible for determining whether or not an assignment is valid.
DISTRIBUTION AGREEMENT AND OTHER CONTRACTUAL ARRANGEMENTS
Applications for the Policies are solicited by agents who are licensed by
state insurance authorities to sell NEVLICO's Variable Life Insurance Policies
and who are also registered representatives of New England Securities. New
England Securities, a Massachusetts corporation organized in 1968, is
registered with the SEC under the Securities Exchange Act of 1934 as a broker-
dealer and is a member of the National Association of Securities Dealers, Inc.
Applications for the Policies are submitted to NEVLICO's Principal
Administrative Office, and under a Services Agreement between NEVLICO, The New
England and New England Securities, The New England performs selection and
insurance underwriting and determines whether to accept or reject the
application for the Policy and the insured's risk classification and performs
other administrative services for the Policy. Pursuant to the Services
Agreement, for the year ending December 31, 1987, The New England was paid
$2,422,457.
24
<PAGE>
New England Securities, whose principal business address is 501 Boylston
Street, Boston, Massachusetts 02117, acts as the principal underwriter, as
defined in the Investment Company Act of 1940, of the Policies for the
Variable Account pursuant to a Distribution Agreement to which NEVLICO and New
England Securities are parties. New England Securities is not obligated to
sell any specific number of Policies. The Distribution Agreement took effect
on July 25, 1983 and will continue in full force and effect until terminated
upon sixty days' written notice by either party.
In accordance with the Distribution Agreement, NEVLICO will pay the
following sales expenses: general agent and agency managers compensation,
agents' training allowances, agency expense allowances, deferred compensation
and insurance benefits of agents, general agents and agency managers and
advertising expenses and all other expenses of distributing the Policies.
Also, commissions will be paid by NEVLICO to the agent involved in the sale
of a Policy generally as follows: agents receive the equivalent of not more
than 45% of the premium paid in the first policy year; in the second through
sixth policy years, agents receive not more than 6% of the premium paid for a
given year; in the seventh through tenth policy years, agents receive not more
than 3% of the premium paid for a given year; after the tenth policy year,
agents receive not more than 1.5% of the premium paid for each year. The
amount of commissions for extra premiums for a Policy covering an insured in a
substandard risk classification will be determined by NEVLICO's rules and
practices current at the time such extra premiums are charged. Additional
commissions are paid based on premiums paid for benefits purchased by rider.
NEVLICO may recapture up to 50% of the first year commission paid to the agent
if the Policy is not continued after the first policy anniversary. Agents with
fewer than 4 years of service may be compensated differently. Agents who meet
certain productivity and persistency standards in selling policies issued by
NEVLICO and the New England may be eligible for additional compensation. These
commissions do not represent a charge against a Policy in addition to the
other charges and deductions described in this prospectus. For the years
ending December 31, 1985, 1986, and 1987, gross premiums paid by Policy Owners
amounted to $1,358,241, $2,554,989, and $34,974,569, respectively. For the
same period, net premiums placed in the Variable Account amounted to $862,910,
$1,766,587, and $30,822,676, respectively.
New England Securities is engaged in the business of underwriting the shares
of open-end investment companies and variable annuity contracts. New England
Securities is principal underwriter for Loomis-Sayles Capital Development
Fund; Loomis-Sayles Mutual Fund; The New England Funds; New England Cash
Management Trust; New England Tax Exempt Money Market Trust; New England Life
Retirement Investment Account; and New England Variable Annuity Fund I. New
England Securities also sells interests in various tax-oriented and similarly
structured investment programs.
New England Securities may enter into selling agreements with other broker-
dealers registered under the Securities and Exchange Act of 1934 whose
representatives are authorized by applicable law to sell Variable Life
Insurance Policies. Under the agreements with any such broker-dealers, the
commission paid to their registered representatives will not exceed 45% of the
premium in the first policy year, 6% in the second through fifth policy years,
and 4% in the sixth through tenth policy years. Commissions will be paid
through the registered broker-dealer, which may also be reimbursed for
portions of expenses incurred in connection with the sale of the Policies.
Officers and employees of NEVLICO are covered by an insurance company
blanket bond issued by National Union Fire Insurance Company of Pittsburgh,
Pa. to The New England in the amount of $10 million subject to a $250,000
deductible. The bond insures against dishonest and fraudulent acts of officers
and employees. New England Securities is covered by a stockbroker's blanket
bond maintained by Loomis Sayles, which provides similar insurance protection
in the amount of $9 million. Both bonds are renegotiated periodically.
NEVLICO's maximum retention on any one life under a policy will not exceed
$75,000. It is anticipated that amounts in excess of the maximum retention
will be reinsured, on a yearly renewable term basis, with The New England.
LIMITS TO NEVLICO'S RIGHT TO CHALLENGE THE POLICY
NEVLICO generally cannot challenge the validity of the Policy or a Rider
after it has been in effect during the insured's lifetime for 2 years from the
date of issue. However, NEVLICO can, of course, challenge at any time any
claim believed to have been improperly submitted under the Policy or a rider.
25
<PAGE>
MISSTATEMENT OF AGE OR SEX
If the insured's age or sex is misstated in the Policy application, the
Policy's cash value and death benefit will be what the premium paid would have
purchased based on the insured's true age and sex.
SUICIDE
If the insured commits suicide within two years from the Policy's date of
issue (or less as required by the applicable state law), the death benefit
will be limited to the sum of all premiums paid minus any outstanding policy
loan and accrued interest.
TAX CONSIDERATIONS
POLICY PROCEEDS
Section 7702 of the Internal Revenue Code provides a definition of a life
insurance contract for Federal income tax purposes. This definition applies to
the Policies discussed herein and NEVLICO believes these Policies meet the
definition.
NEVLICO believes the death benefits received under its variable life
insurance policies are excludible from the gross income of the beneficiary
pursuant to the provisions of Section 101(a) of the Code. Furthermore, NEVLICO
believes owners of its Policies will not be deemed to be in constructive
receipt of the cash values, including increments thereon, under such Policies
until their actual surrender. In the event of a distribution under the
Policies which has the net effect of reducing future benefits (such as future
death benefits) under the Policies, all or part of the distribution may be
taxable to the Policy owner as ordinary income to the extent of any investment
earnings in the Policy. Under present law, NEVLICO believes any policy loans
received under a Policy constitute indebtedness of the Policy owner and no
part of a policy loan will be treated as income to the Policy owner.
Deductibility of policy loan interest is limited under current Federal income
tax law.
The United States Congress has in the past and may in the future consider
legislation that, if enacted, could adversely affect the tax treatment of life
insurance policies, including loans and other distributions and undistributed
appreciation. A bill with retroactive effect adversely altering the tax
treatment of loans and pre-death distributions under life insurance policies
was introduced in the House of Representatives in 1987. There is no way of
predicting whether, when or in what form Congress will enact this bill or any
other legislation affecting life insurance policies. Please consult your tax
adviser or attorney.
Federal and state estate, inheritance and other tax consequences of
ownership or receipt of proceeds under the Policy depend upon the individual
circumstances of each Policy owner or beneficiary.
Section 817(h) of the Code requires the investments of the Variable Account
to be "adequately diversified" in accordance with Treasury Regulations for the
policy to qualify as a life insurance contract under Section 7702 of the Code.
Failure to comply with the diversification requirements may result in not
treating the Policy as life insurance. If the Policy does not qualify as life
insurance, the Policy Owner may be subjected to immediate taxation on the
incremental increases in cash value of the Policy. Regulations specifying the
diversification requirements have been released by the Department of Treasury
and NEVLICO fully intends to comply with such requirements. NEVLICO believes
that the Policy meets other existing requirements relating to the degree of
Policy Owner control over investments, including premium allocation and
transfer privileges. However, the Secretary of the Treasury has not issued
regulations on this subject. Such regulations, if adopted, could include
additional requirements that are not reflected in the Policy. NEVLICO believes
any such additional requirements would apply prospectively.
NEVLICO recommends each prospective owner of a Policy consult his/her own
tax advisor prior to purchasing a Policy.
CHARGE FOR NEVLICO'S INCOME TAXES
NEVLICO is a relatively new life insurance company and does not expect to
incur any substantial Federal income tax liabilities for a number of years. In
addition, under current Federal income tax law no tax is imposed on NEVLICO as
a result of the operations of the Variable Account. Thus, no charge is being
made currently to the Variable Account for company Federal income taxes
attributable to the Variable Account. If changes are made in the Federal
income tax treatment of variable life insurance at the company level. NEVLICO
reserves its rights to charge the Variable Account for company Federal income
taxes.
Under current laws NEVLICO may incur state and local taxes (in addition to
premium taxes) in several states. At present these taxes are not significant
and, accordingly, NEVLICO is not currently making a charge for them. If they
increase, however, charges for such taxes attributable to the Variable Account
may be made.
26
<PAGE>
MANAGEMENT
The Directors and Executive Officers of NEVLICO and their principal business
experience during the past five years are as follows:
DIRECTORS OF NEVLICO
<TABLE>
<CAPTION>
PRINCIPAL BUSINESS EXPERIENCE DURING
NAME THE PAST FIVE YEARS
---- ------------------------------------
<C> <S>
John A. Fibiger Vice Chairman of the Board since 1988 and President and Chief
Operating Officer of The New England since 1984; formerly,
President, 1981 to 1984, of The New England; Chairman of
NEVLICO
Edward C. Hall Senior Vice President--Clients Services of The New England since
1982; Vice President--Administration of NEVLICO
Edward E. Phillips Chairman of the Board and Chief Executive Officer of The New
England since 1978
Robert E. Schneider Senior Vice President of The New England since 1984; formerly,
Vice President and Actuary, 1982 to 1984, of The New England;
Vice President and Chief Actuary of NEVLICO
Robert A. Shafto President--Insurance and Personal Financial Services of The New
England since 1988; formerly, Executive Vice President--
Insurance and Employee Benefits Operations, 1982 to 1988, of
The New England; President of NEVLICO
Daniel J. Toran Senior Vice President--Agencies of The New England since 1986;
formerly, Vice President--Agency Operations, 1983 to 1986;
Second Vice President--Pension Administrative Services, 1980 to
1983, of The New England
Ralph F. Verni President--Institutional Investment Group of The New England
since 1988; formerly, Executive Vice President--Financial
Operations, 1982 to 1988, of The New England
EXECUTIVE OFFICERS OF NEVLICO
OTHER THAN DIRECTORS
<CAPTION>
PRINCIPAL BUSINESS EXPERIENCE DURING
NAME THE PAST FIVE YEARS
---- ------------------------------------
<C> <S>
F. Brooks Cowgill Vice President and Treasurer of The New England since 1979; Vice
President and Treasurer of NEVLICO
Chester R. Frost Senior Vice President of The New England since 1984; formerly,
Vice President and Controller of The New England, 1980 to 1984;
Vice President--Controller of NEVLICO
John F. Guthrie Vice President of The New England since 1983; Vice President--
Investments of NEVLICO
Kernan F. King Senior Vice President, Secretary and General Counsel of The New
England since 1984; formerly, Vice President and Secretary,
1979 to 1983, and Counsel, 1977 to 1983, of The New England;
Secretary of NEVLICO
Francis J. Malone Senior Vice President of The New England since 1987; formerly
Vice President of The New England, 1966 to 1987; Vice
President--Marketing of NEVLICO
John G. Small Vice President of The New England since 1986; formerly, Second
Vice President of The New England, 1982 to 1986; Vice President
and Chief Underwriter of NEVLICO
Philip G. Sullivan Second Vice President and Medical Director of The New England
since 1974; Vice President and Medical Director of NEVLICO
Edward N. Wadsworth Senior Vice President and Associate General Counsel of The New
England since 1984; formerly, Vice President and Counsel of The
New England, 1979 to 1983; General Counsel and Assistant
Secretary of NEVLICO
</TABLE>
The principal business address for each of the Directors and Executive
Officers is the same as NEVLICO's.
27
<PAGE>
VOTING RIGHTS
NEVLICO is the legal owner of all Variable Account assets, which consist
primarily of the New England Zenith Fund shares held in the investment sub-
accounts of the Variable Account. As such, NEVLICO is the legal owner of such
shares with the corresponding right to vote them. However, in accordance with
NEVLICO's view of the present applicable law, the Policy Owner will be
permitted to give instructions as to how shares of each New England Zenith
Fund portfolio in which such Policy Owner has an interest through the Policy's
Sub-Accounts should be voted at meetings of shareholders.
Those Policy Owners permitted to give instructions and the number of shares
for which instructions may be given will be determined as of the record date
for the meeting. All New England Zenith Fund shares held in any sub-account of
the Variable Account or any other registered (or, to the extent granted by the
issuing insurance company, unregistered) separate account of NEVLICO or any
affiliate that are or are not attributable to life insurance policies
(including the Policies) or annuity contracts and for which no timely
instructions are received will be voted for, against, or withheld from voting
on any proposition in the same proportion as (i) the aggregate record date net
cash value held in such sub-account for policies or contracts giving
instructions, respectively, to vote for, against, or withhold votes on such
proposition, bears to (ii) the aggregate record date net cash value held in
that sub-account for all policies or contracts for which voting instructions
are received. Owners of Policies continued in effect under lapse options will
not be permitted to give voting instructions.
All New England Zenith Fund shares held by the general investment account
(or any unregistered separate account for which voting privileges were not
extended) of NEVLICO or its affiliates will be voted in the same proportion as
the aggregate of (i) the shares for which voting instructions are received and
(ii) the shares that are voted in proportion to such voting instructions.
Pursuant to conditions imposed in connection with regulatory relief granted
by the SEC, the New England Zenith Fund's Board of Trustees has an obligation
to monitor events to identify conflicts that may arise from the sale of shares
to other variable life or variable annuity separate accounts, for example
changes in state insurance law or Federal income tax, changes in investment
management of any portfolio of the New England Zenith Fund, or differences
between voting instructions given by variable life contract owners. The Board
of Trustees will have an obligation to determine what action should be taken,
up to and including the establishment of a new fund at NEVLICO's expense. If
NEVLICO believes any New England Zenith Fund action is insufficient. NEVLICO
will see to it that appropriate action is taken to protect Policy Owners.
There could, however, be unavoidable delays or interruptions of operations of
the Variable Account that NEVLICO may be unable to remedy.
NEVLICO may, when required by state insurance regulatory authorities,
disregard voting instructions if the instructions require that the shares be
voted so as to cause a change in the investment objectives of the portfolios
of the New England Zenith Fund or to approve or disapprove an investment
advisory or underwriting contract for such a portfolio. In addition, NEVLICO
itself may disregard voting instructions in favor of changes initiated by a
Policy Owner or the New England Zenith Fund's Board of Trustees in the
investment policy, investment adviser or principal underwriter of a New
England Zenith Fund portfolio if NEVLICO (i) reasonably disapproves of such
changes and (ii) in the case of a change in investment policy or investment
adviser, makes a good faith determination that the proposed change is contrary
to state law or prohibited by state regulatory authorities or that the change
would be inconsistent with a sub-account's investment objectives or would
result in the purchase of securities which vary from the general quality and
nature of investments and investment techniques utilized by other separate
accounts of NEVLICO or of an affiliated life insurance company, which separate
accounts have investment objectives similar to those of the sub-account. In
the event NEVLICO does disregard voting instructions, a summary of that action
and the reasons for such action will be included in the next semiannual report
to Policy Owners.
RIGHTS RESERVED BY NEVLICO
The voting procedures described in this prospectus are based on NEVLICO'S
and The New England's current understanding of requirements under applicable
Federal securities laws or regulations or interpretations of such laws or
regulations. In the future, if the Federal securities laws or regulations or
interpretations of them change so that NEVLICO or The New England are
permitted to vote any New England Zenith Fund shares in their own right,
NEVLICO or The New England may elect to do so. NEVLICO also reserves the
right, subject to compliance with applicable law, including approval of Policy
Owners if so required. (1) to create new investment accounts; (2) to combine
any two or more separate investment accounts including the Variable Account;
(3) to make available additional sub-accounts of the Variable Account
investing in additional New England Zenith Fund portfolios; (4) to invest the
assets of the Variable Account in securities other than New England Zenith
Fund shares or in shares of a different series of the New England Zenith Fund
as a substitute for such shares already purchased
28
<PAGE>
or as the securities to be purchased in the future, to withdraw the
availability of a series of the New England Zenith Fund as an investment
option under the policies, or to transfer assets to NEVLICO's general account;
(5) to operate the Variable Account as a management investment company under
the Investment Company Act of 1940 or in any other form permitted by law; and
(6) to deregister the Variable Account under the Investment Company Act of
1940 in the event such registration is no longer required. Policy Owner
approval would probably not be required for NEVLICO to exercise most of these
rights. However, NEVLICO will notify a Policy Owner if any such exercise of
rights were to result in a material change in the Variable Account or its
investments, although notice may not be legally required in all cases. Except
as set forth above and as required by Federal or state law or regulation,
NEVLICO will not take any action adversely affecting the rights of Policy
Owners without their consent.
REPORTS
Annually (except while the Policy is continued in effect under a lapse
option), as of the policy anniversary, NEVLICO will send a statement to the
Policy Owner setting forth the death benefit, cash value of the Policy and any
outstanding policy loan principal. NEVLICO will also send confirmations of
significant financial activities, such as policy loans, reallocations among
sub-accounts, lapses and surrenders, when the transactions occur.
Policy Owners will be sent semiannually a report containing the financial
statements of the Variable Account and New England Zenith Fund.
LEGAL MATTERS
Legal matters in connection with the Policies described in this prospectus
have been passed on by Edward N. Wadsworth, General Counsel of NEVLICO.
Messrs. Freedman, Levy, Kroll & Simonds, Washington, D.C., have acted as
special counsel on certain matters relating to the Federal securities laws.
REGISTRATION STATEMENT
This prospectus omits certain information contained in the Registration
Statement which has been filed with the SEC. Copies of such additional
information may be obtained from the SEC upon payment of the prescribed fee.
EXPERTS
The financial statements of New England Variable Life Insurance Company and
of the Variable Account have been examined by Coopers & Lybrand, independent
auditors, as stated in their opinions appearing herein and have been so
included in reliance upon their authority as experts in accounting and
auditing.
Actuarial matters included in this prospectus have been examined by Robert
E. Schneider, F.S.A., Chief Actuary of NEVLICO, as stated in his opinion filed
as an exhibit to the Registration Statement.
29
<PAGE>
APPENDIX A
ILLUSTRATIONS OF DEATH BENEFITS, CASH VALUES AND ACCUMULATED PREMIUMS
The tables in Appendix A illustrate the way the Policies operate. They show
how the death benefit and net cash value could vary over an extended period of
time assuming hypothetical gross rates of return (i.e. investment income and
capital gains and losses, realized or unrealized) equivalent to constant after
tax annual rates of 0%, 4%, 6%, 8% and 12%. The tables are based on annual
premiums, before deduction of the $35 annual administrative charge, of $500
and $1,000 for males aged 25 and 40, respectively. The males aged 25 and 40
are first assumed to be in a standard risk classification and then in a
preferred risk classification. These tables will assist in the comparison of
death benefits and net cash values for the Policies with those under other
variable life insurance policies which may be issued by NEVLICO or other
companies.
If premiums were paid at other than annual intervals, death benefits and net
cash values would differ from those shown in the tables. Death benefits and
net cash values for a Policy would be different from the amounts shown if the
actual gross rates of return averaged 0%, 4%, 6%, 8% or 12%, but varied above
and below that average for the period. They would also be different depending
on the allocation of net premiums among the Variable Account's sub-accounts,
if the actual gross rate of return for all sub-accounts averaged 0%, 4%, 6%,
8% or 12%, but varied above or below that average for individual sub-accounts.
They would also differ if any policy loan were made during the period of time
illustrated, or if the Policies were issued at unisex rates.
The death benefits and net cash values shown in the tables reflect the fact
that the deductions have been made from annual premiums for the annual
administrative charge, additional first year administrative charge, sales
charge, minimum death benefit risk charge and state premium tax charge. They
also reflect a daily charge assessed against the Variable Account for
mortality and expense risks equivalent to an annual charge of .35% of the
average daily value of the assets in the Variable Account attributable to the
Policies and the monthly cost of insurance charge. (See "Charges and
Expenses".) The amounts shown in the table also reflect an average of the
investment advisory fees and certain operating expenses incurred by the New
England Zenith Fund, at a projected annual rate (based on historical costs) of
.465% of the average daily net assets of the New England Zenith Fund. (See
"Charges Against the New England Zenith Fund and the Sub-Accounts of the
Variable Account".)
Taking account of the charges for expense and mortality risks in the
Variable Account and the average investment advisory fees and operating
expenses of the New England Zenith Fund, the gross annual rates of return of
0%, 4%, 6%, 8% and 12% correspond to net investment experience at constant
annual rates of -.81%, 3.16%, 5.14%, 7.12% and 11.09%, respectively. (See "Net
Investment Experience".)
The hypothetical rates of return shown in the tables do not reflect any tax
charges attributable to the Variable Account since no such charges are
currently made. If any such charges are imposed in the future, the gross
annual rate of return would have to exceed the rates shown by an amount
sufficient to cover the tax charges, in order to produce the death benefits
and cash values illustrated. (See "Charge for NEVLICO's Income Taxes".)
The second and third columns of each table show the amount which would
accumulate if an amount equal to the annual premium were invested to earn
interest, after taxes, of 4% and 5% per year, compounded annually.
The internal rate of return on net cash value is equivalent to an interest
rate (after taxes) at which an amount equal to the illustrated premiums could
have been invested to arrive at the net cash value of the Policy. The internal
rate of return is compounded annually, and the premiums are assumed to be paid
at the beginning of each policy year.
The tables show that if a Policy is returned in its early years for payment
of its net cash value, the net cash value will be low in comparison to
premiums accumulated with interest. This means that the cost of maintaining
insurance for a relatively short time will be high.
NEVLICO will furnish upon request an illustration reflecting the proposed
insured's age, sex, the face amount or premium amount requested and any rider
requested. If the Policy is proposed to be issued in Montana or in connection
with certain employer-sponsored benefit plans and fringe benefit programs.
NEVLICO will also furnish upon request an illustration for a Policy which does
not vary based on the sex of the insured. The illustration will assume that
premiums are paid on an annual basis and that the proposed insured is not in a
substandard risk classification.
30
<PAGE>
MALE ISSUE AGE 25
$500 ANNUAL PREMIUM FOR STANDARD UNDERWRITING RISK
$40,969 FACE AMOUNT
<TABLE>
<CAPTION>
DEATH BENEFIT NET CASH VALUE
PREMIUMS PREMIUMS ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL
ACCUMULATED ACCUMULATED GROSS ANNUAL GROSS ANNUAL
END OF AT 4% AT 5% RATE OF RETURN OF RATE OF RETURN OF
POLICY INTEREST INTEREST ---------------------------------------- ---------------------------------------
YEAR PER YEAR PER YEAR 0% 4% 6% 8% 12% 0% 4% 6% 8% 12%
- ------ ----------- ----------- -- -- -- -- --- -- -- -- -- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 520 $ 525 $40,969 $40,969 $40,978 $40,996 $ 41,031 $ 133 $ 140 $ 143 $ 147 $ 154
2 1,061 1,076 40,969 40,969 41,006 41,071 41,204 443 470 483 497 525
3 1,623 1,655 40,969 40,969 41,050 41,195 41,494 751 810 840 872 936
4 2,208 2,263 40,969 40,969 41,111 41,366 41,905 1,056 1,160 1,215 1,272 1,392
5 2,816 2,901 40,969 40,969 41,191 41,592 42,453 1,391 1,555 1,643 1,735 1,933
6 3,449 3,571 40,969 40,969 41,288 41,870 43,145 1,723 1,962 2,092 2,230 2,533
7 4,107 4,275 40,969 40,969 41,403 42,203 43,988 2,052 2,380 2,563 2,759 3,196
8 4,791 5,013 40,969 40,969 41,536 42,589 44,989 2,378 2,811 3,056 3,323 3,930
9 5,503 5,789 40,969 40,969 41,686 43,031 46,155 2,700 3,253 3,572 3,924 4,742
10 6,243 6,603 40,969 40,969 41,852 43,527 47,496 3,019 3,708 4,113 4,566 5,639
15 10,412 11,329 40,969 40,969 42,929 46,847 57,156 4,537 6,149 7,192 8,437 11,714
20 15,485 17,360 40,969 40,969 44,385 51,607 72,834 5,882 8,822 10,918 13,602 21,490
25 21,656 25,057 40,969 40,969 46,192 57,890 96,525 7,036 11,695 15,362 20,405 37,058
30 29,164 34,880 40,969 40,969 48,327 65,824 131,088 7,994 14,727 20,576 29,235 61,532
35 38,299 47,418 40,969 40,969 50,782 75,594 180,604 8,804 17,907 26,635 40,566 99,524
40 49,413 63,420 40,969 40,969 53,562 87,463 250,888 9,592 21,291 33,657 54,959 157,652
<CAPTION>
INTERNAL RATE
OF RETURN ON
NET CASH VALUE
ASSUMING HYPOTHETICAL
GROSS ANNUAL
END OF RATE OF RETURN OF
POLICY ---------------------------------------
YEAR 0% 4% 6% 8% 12%
- ------- -- -- -- -- ---
<S> <C> <C> <C> <C> <C>
1 -73.39% -71.98% -71.28% -70.58% -69.16%
2 -43.35 -40.88 -39.65 -38.42 -35.96
3 -30.78 -27.77 -26.27 -24.77 -21.77
4 -23.96 -20.62 -18.96 -17.30 -13.98
5 -18.92 -15.41 -13.67 -11.92 -8.44
6 -15.66 -12.02 -10.21 -8.41 -4.81
7 -13.38 -9.65 -7.80 -5.95 -2.26
8 -11.71 -7.90 -6.02 -4.14 -0.39
9 -10.43 -6.57 -4.65 -2.75 1.05
10 -9.43 -5.52 -3.58 -1.66 2.18
15 -6.59 -2.53 -0.53 1.46 5.39
20 -5.38 -1.21 0.83 2.85 6.83
25 -4.78 -0.52 1.55 3.59 7.59
30 -4.45 -0.12 1.97 4.01 8.03
35 -4.25 0.13 2.22 4.27 8.29
40 -4.04 0.30 2.39 4.43 8.44
</TABLE>
IT IS EMPHASIZED THAT THE HYPOTHETICAL GROSS ANNUAL RATES OF RETURN SHOWN
ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL
GROSS RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON
A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY A POLICY
OWNER, THE FREQUENCY OF PREMIUM PAYMENTS CHOSEN BY A POLICY OWNER, AND THE
INVESTMENT EXPERIENCE OF THE POLICY'S SUB-ACCOUNTS. THE DEATH BENEFIT AND CASH
VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS
ANNUAL RATES OF RETURN AVERAGED 0%, 4%, 6%, 8%, AND 12% OVER A PERIOD OF
YEARS, BUT VARIED ABOVE OR BELOW THAT AVERAGE DURING THE PERIOD. THEY WOULD
ALSO BE DIFFERENT IF ANY POLICY LOAN WERE MADE DURING THE PERIOD. NO
REPRESENTATIONS CAN BE MADE BY NEVLICO OR THE NEW ENGLAND ZENITH FUND THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUBSTAINED OVER ANY PERIOD OF TIME.
31
<PAGE>
MALE ISSUE AGE 25
$500 ANNUAL PREMIUM FOR PREFERRED UNDERWRITING RISK
$40,969 FACE AMOUNT
<TABLE>
<CAPTION>
DEATH BENEFIT NET CASH VALUE
PREMIUMS PREMIUMS ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL
ACCUMULATED ACCUMULATED GROSS ANNUAL GROSS ANNUAL
END OF AT 4% AT 5% RATES OF RETURN OF RATES OF RETURN OF
POLICY INTEREST INTEREST ----------------------------------------- ----------------------------------------
YEAR PER YEAR PER YEAR 0% 4% 6% 8% 12% 0% 4% 6% 8% 12%
- ------ ----------- ----------- -- -- -- -- --- -- -- -- -- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 520 $ 525 $41,059 $41,096 $41,115 $ 41,133 $ 41,170 $ 159 $ 167 $ 171 $ 174 $ 182
2 1,061 1,076 41,066 41,204 41,273 41,344 41,487 496 525 539 554 584
3 1,623 1,655 40,996 41,292 41,445 41,601 41,924 829 893 925 959 1,029
4 2,208 2,263 40,969 41,362 41,629 41,905 42,488 1,158 1,271 1,330 1,392 1,521
5 2,816 2,901 40,969 41,414 41,829 42,262 43,196 1,517 1,695 1,790 1,889 2,104
6 3,449 3,571 40,969 41,449 42,043 42,673 44,055 1,872 2,130 2,271 2,421 2,749
7 4,107 4,275 40,969 41,466 42,272 43,138 45,072 2,223 2,578 2,776 2,988 3,462
8 4,791 5,013 40,969 41,466 42,515 43,656 46,257 2,569 3,038 3,304 3,593 4,251
9 5,503 5,789 40,969 41,451 42,773 44,230 47,618 2,912 3,511 3,857 4,238 5,124
10 6,243 6,603 40,969 41,422 43,046 44,862 49,166 3,251 3,997 4,436 4,927 6,090
15 10,412 11,329 40,969 41,159 44,722 48,982 60,204 4,882 6,629 7,762 9,116 12,683
20 15,485 17,360 40,969 40,969 47,045 54,969 78,303 6,395 9,609 11,907 14,851 23,523
25 21,656 25,057 40,969 40,969 49,939 62,947 106,003 7,745 12,906 16,978 22,585 41,144
30 29,164 34,880 40,969 40,969 53,223 72,938 146,668 8,869 16,420 22,999 32,755 69,242
35 38,229 47,418 40,969 40,969 56,691 85,311 205,675 9,817 20,155 30,104 46,021 113,600
40 49,413 63,420 40,969 40,969 61,218 100,555 290,942 10,700 24,163 38,468 63,186 182,821
<CAPTION>
INTERNAL RATE
OF RETURN ON
NET CASH VALUE
ASSUMING HYPOTHETICAL
GROSS ANNUAL
END OF RATES OF RETURN OF
POLICY ---------------------------------------
YEAR 0% 4% 6% 8% 12%
- ------- -- -- -- -- ---
<S> <C> <C> <C> <C> <C>
1 -68.03% -66.52% -65.77% -65.02% -63.51%
2 -38.52 -35.97 -34.70 -33.43 -30.89
3 -26.84 -23.78 -22.25 -20.73 -17.68
4 -20.69 -17.33 -15.65 -13.98 -10.64
5 -16.20 -12.68 -10.93 -9.18 -5.69
6 -13.34 -9.70 -7.90 -6.09 -2.49
7 -11.37 -7.65 -5.80 -3.95 -0.27
8 -9.94 -6.15 -4.26 -2.39 1.36
9 -8.85 -5.01 -3.10 -1.20 2.59
10 -8.01 -4.11 -2.19 -0.27 3.56
15 -5.59 -1.56 0.43 2.40 6.32
20 -4.48 -0.38 1.63 3.63 7.59
25 -3.92 0.25 2.28 4.29 8.27
30 -3.65 0.58 2.63 4.65 8.64
35 -3.50 0.77 2.83 4.86 8.85
40 -3.37 0.90 2.96 4.99 8.97
</TABLE>
IT IS EMPHASIZED THAT THE HYPOTHETICAL GROSS ANNUAL RATES OF RETURN SHOWN
ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL
GROSS RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON
A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY A POLICY
OWNER, THE FREQUENCY OF PREMIUM PAYMENTS CHOSEN BY A POLICY OWNER, AND THE
INVESTMENT EXPERIENCE OF THE POLICY'S SUB-ACCOUNTS. THE DEATH BENEFIT AND CASH
VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS
ANNUAL RATES OF RETURN AVERAGED 0%, 4%, 6%, 8%, AND 12% OVER A PERIOD OF
YEARS, BUT VARIED ABOVE OR BELOW THAT AVERAGE DURING THE PERIOD. THEY WOULD
ALSO BE DIFFERENT IF ANY POLICY LOAN WERE MADE DURING THE PERIOD. NO
REPRESENTATIONS CAN BE MADE BY NEVLICO OR THE NEW ENGLAND ZENITH FUND THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
32
<PAGE>
MALE ISSUE AGE 40
$1,000 ANNUAL PREMIUM FOR STANDARD UNDERWRITING RISK
$39,549 FACE AMOUNT
<TABLE>
<CAPTION>
DEATH BENEFIT NET CASH VALUE
PREMIUMS PREMIUMS ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL
ACCUMULATED ACCUMULATED GROSS ANNUAL GROSS ANNUAL
END OF AT 4% AT 5% RATES OF RETURN OF RATES OF RETURN OF
POLICY INTEREST INTEREST ---------------------------------------- ---------------------------------------
YEAR PER YEAR PER YEAR 0% 4% 6% 8% 12% 0% 4% 6% 8% 12%
- ------ ----------- ----------- -- -- -- -- --- -- -- -- -- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 1,040 $ 1,050 $39,549 $39,549 $39,567 $39,600 $ 39,665 $ 458 $ 480 $ 490 $ 501 $ 522
2 2,122 2,153 39,549 39,549 39,609 39,715 39,931 1,118 1,188 1,223 1,259 1,332
3 3,246 3,310 39,549 39,549 39,673 39,893 40,351 1,763 1,908 1,983 2,060 2,221
4 4,416 4,526 39,549 39,549 39,759 40,135 40,932 2,394 2,641 2,772 2,908 3,195
5 5,663 5,802 39,549 39,549 39,867 40,444 41,688 3,051 3,430 3,633 3,847 4,310
6 6,898 7,142 39,549 39,549 39,998 40,818 42,625 3,693 4,231 4,527 4,841 5,533
7 8,214 8,549 39,549 39,549 40,150 41,260 43,752 4,320 5,047 5,453 5,891 6,875
8 9,853 10,027 39,549 39,549 40,324 41,768 45,077 4,931 5,875 6,413 7,000 8,346
9 11,006 11,578 39,549 39,549 40,518 42,344 46,610 5,527 6,716 7,407 8,171 9,958
10 12,486 13,207 39,549 39,549 40,733 42,986 48,362 6,107 7,570 8,436 9,407 11,724
15 20,825 22,657 39,549 39,549 42,102 47,231 60,835 8,784 12,025 14,138 16,676 23,409
20 30,969 34,719 39,549 39,549 43,947 53,286 80,980 11,171 16,838 20,912 26,155 41,704
25 43,312 50,113 39,549 39,549 46,268 61,370 111,639 13,513 22,202 29,073 38,563 70,151
<CAPTION>
INTERNAL RATE
OF RETURN ON
NET CASH VALUE
ASSUMING HYPOTHETICAL
GROSS ANNUAL
END OF RATES OF RETURN OF
POLICY ---------------------------------------
YEAR 0% 4% 6% 8% 12%
- ------- -- -- -- -- ---
<S> <C> <C> <C> <C> <C>
1 -54.12% -51.99% -50.92% -49.86% -47.72%
2 -33.02 -30.07 -28.61 -27.14 -24.20
3 -24.30 -20.96 -19.30 -17.63 -14.30
4 -19.50 -15.92 -14.14 -12.35 -8.78
5 -16.03 -12.31 -10.46 -8.61 -4.91
6 -13.73 -9.90 -8.00 -6.10 -2.31
7 -12.09 -8.19 -6.25 -4.31 -0.45
8 -10.88 -6.91 -4.94 -2.97 0.94
9 -9.95 -5.92 -3.92 -1.94 2.02
10 -9.21 -5.13 -3.12 -1.11 2.87
15 -7.04 -2.82 -0.74 1.31 5.38
20 -5.95 -1.67 0.42 2.49 6.57
25 -5.15 -0.93 1.14 3.19 7.23
</TABLE>
IT IS EMPHASIZED THAT THE HYPOTHETICAL GROSS ANNUAL RATES OF RETURN SHOWN
ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL
GROSS RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON
A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY A POLICY
OWNER, THE FREQUENCY OF PREMIUM PAYMENTS CHOSEN BY A POLICY OWNER, AND THE
INVESTMENT EXPERIENCE OF THE POLICY'S SUB-ACCOUNTS. THE DEATH BENEFIT AND CASH
VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS
ANNUAL RATES OF RETURN AVERAGED 0%, 4%, 6%, 8%, AND 12% OVER A PERIOD OF
YEARS, BUT VARIED ABOVE OR BELOW THAT AVERAGE DURING THE PERIOD. THEY WOULD
ALSO BE DIFFERENT IF ANY POLICY LOAN WERE MADE DURING THE PERIOD. NO
REPRESENTATIONS CAN BE MADE BY NEVLICO OR THE NEW ENGLAND ZENITH FUND THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
33
<PAGE>
MALE ISSUE AGE 40
$1,000 ANNUAL PREMIUM FOR PREFERRED UNDERWRITING RISK
$39,549 FACE AMOUNT
<TABLE>
<CAPTION>
DEATH BENEFIT NET CASH VALUE
PREMIUMS PREMIUMS ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL
ACCUMULATED ACCUMULATED GROSS ANNUAL GROSS ANNUAL
END OF AT 4% AT 5% RATES OF RETURN OF RATES OF RETURN OF
POLICY INTEREST INTEREST ---------------------------------------- ---------------------------------------
YEAR PER YEAR PER YEAR 0% 4% 6% 8% 12% 0% 4% 6% 8% 12%
- ------ ----------- ----------- -- -- -- -- --- -- -- -- -- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 1,040 $ 1,050 $39,603 $39,671 $39,704 $39,738 $ 39,806 $ 502 $ 524 $ 535 $ 546 $ 568
2 2,122 2,153 39,569 39,786 39,896 40,007 40,234 1,210 1,283 1,320 1,358 1,435
3 3,246 3,310 39,549 39,895 40,123 40,356 40,840 1,907 2,061 2,141 2,222 2,391
4 4,416 4,526 39,549 39,999 40,384 40,785 41,633 2,595 2,858 2,997 3,142 3,447
5 5,633 5,802 39,549 40,094 40,680 41,296 42,626 3,312 3,718 3,935 4,164 4,658
6 6,898 7,142 39,549 40,180 41,008 41,889 43,827 4,018 4,596 4,913 5,251 5,993
7 8,214 8,549 39,549 40,253 41,362 42,558 45,243 4,709 5,493 5,931 6,404 7,463
8 9,583 10,027 39,549 40,310 41,741 43,303 46,881 5,385 6,407 6,989 7,624 9,079
9 11,006 11,578 39,549 40,350 42,140 44,122 48,751 6,044 7,336 8,086 8,916 10,854
10 12,486 13,207 39,549 40,372 42,559 45,013 50,864 6,686 8,280 9,223 10,280 12,803
15 20,825 22,657 39,549 40,252 44,964 50,622 65,634 9,650 13,223 15,555 18,355 25,783
20 30,969 34,719 39,549 39,831 47,928 58,358 89,319 12,287 18,601 23,147 29,003 46,386
25 43,312 50,113 39,549 39,549 51,474 68,560 125,559 14,808 24,586 32,345 43,081 78,898
<CAPTION>
INTERNAL RATE
OF RETURN ON
NET CASH VALUE
ASSUMING HYPOTHETICAL
GROSS ANNUAL
END OF RATES OF RETURN OF
POLICY ---------------------------------------
YEAR 0% 4% 6% 8% 12%
- ------- -- -- -- -- ---
<S> <C> <C> <C> <C> <C>
1 -49.75% -47.53% -46.43% -45.32% -43.10%
2 -29.16 -26.17 -24.67 -23.18 -20.18
3 -20.98 -17.62 -15.94 -14.27 -10.91
4 -16.57 -12.99 -11.21 -9.42 -5.85
5 -13.42 -9.72 -7.87 -6.03 -2.35
6 -11.36 -7.57 -5.68 -3.80 -0.03
7 -9.92 -6.06 -4.14 -2.22 1.60
8 -8.88 -4.96 -3.01 -1.07 2.81
9 -8.09 -4.12 -2.15 -0.19 3.73
10 -7.47 -3.46 -1.48 0.50 4.45
15 -5.75 -1.59 0.45 2.48 6.51
20 -4.91 -0.70 1.37 3.42 7.47
25 -4.32 -0.13 1.93 3.96 8.00
</TABLE>
IT IS EMPHASIZED THAT THE HYPOTHETICAL GROSS ANNUAL RATES OF RETURN SHOWN
ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL
GROSS RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON
A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY A POLICY
OWNER, THE FREQUENCY OF PREMIUM PAYMENTS CHOSEN BY A POLICY OWNER, AND THE
INVESTMENT EXPERIENCE OF THE POLICY'S SUB-ACCOUNTS. THE DEATH BENEFIT AND CASH
VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS
ANNUAL RATES OF RETURN AVERAGED 0%, 4%, 6%, 8%, AND 12% OVER A PERIOD OF
YEARS, BUT VARIED ABOVE OR BELOW THAT AVERAGE DURING THE PERIOD. THEY WOULD
ALSO BE DIFFERENT IF ANY POLICY LOAN WERE MADE DURING THE PERIOD. NO
REPRESENTATIONS CAN BE MADE BY NEVLICO OR THE NEW ENGLAND ZENITH FUND THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
34
<PAGE>
APENDIX B
CALCULATION OF CHANGE IN VARIABLE DEATH BENEFIT
The amount by which the Variable Death Benefit will increase or decrease for
any month is the amount of paid-up life insurance which the dollar amount of
the excess or shortfall in net investment experience of the Policy's Sub-
Accounts (the difference between the actual net investment experience of the
Policy's Sub-Accounts and the amount their net investment experience would be
at the monthly equivalent of the Policy's Assumed Interest Rate) would
purchase at net single premium rates described in the Policy for the insured's
age.
To calculate the change in the Variable Death Benefit the positive or
negative net investment experience for the preceding policy month is divided
by the product of a survivorship factor and a net single premium per $1 of
paid-up life insurance based on the insured's age as of the date of
calculation. Thus, for example, if the net investment experience is $100,
positive or negative, the Variable Death Benefit will increase or decrease by
$370.05 for a male in a standard risk classification at attained age 35. (See
table of net single premiums and survivorship factors below.)
EXAMPLE: Using the Policy illustrated on page 33 and assuming a constant 8%
hypothetical gross annual rate of return (equivalent to actual net investment
experience at a constant annual rate of 7.12%), the following example
illustrates how the change in the Variable Death Benefit is calculated at the
end of the 61st policy month.
<TABLE>
<CAPTION>
CALCULATION OF CHANGE IN
VARIABLE DEATH BENEFIT
STANDARD POLICY AT END OF 61ST POLICY MONTH
- --------------- ---------------------------
<S> <C>
(1) Net Cash Value at End of Policy Month 60... $3,847.81
(2) Annual Net Premium in Policy Year 6........ 859.51
---------
(3) Amount Allocated to Policy's Sub-Accounts
at Beginning of Policy Month 61: (1) + (2). 4,707.32
(4) Annual Rate of Net Investment Experience
(.0712) Less Assumed Rate of Return (.04)..
.0312 or. for one month. .002473
(5) Excess/Shortfall Net Investment Experience:
(3) X (4).................................. 11.6473
(6) Net Single Premium at End of Policy Month
61......................................... .37255
(7) Survivorship Factor........................ .99955
(8) Change in Variable Death Benefit: (5) / (6)
X 7........................................ 31.28
For preferred risk and female insureds, the change in Variable Death Benefit
involves an adjustment for the preferred or female cost of insurance factor.
(See Appendix D.) Using the Policy described above for a male in a preferred
risk classification (the Policy illustrated on page 34), the following example
illustrates how the change in the Variable Death Benefit is calculated at the
end of the 61st policy month.
<CAPTION>
CALCULATION OF CHANGE ON
VARIABLE DEATH BENEFIT
PREFERRED MALE POLICY AT END OF 61ST POLICY MONTH
- --------------------- ---------------------------
<S> <C>
(1) Net Cash Value at End of Policy Month 60... $4,164.75
(2) Annual Net Premium in Policy Year 6........ 859.51
---------
(3) Amount Allocated to Policy's Sub-Accounts
at Beginning of Policy Month 61: (1) + (2). 5,024.26
(4) Annual Rate of Net Investment Experience
(.0712) Less Assumed Rate of Return (.04)..
.0312 or. for one month. .002473
(5) Excess/Shortfall Net Investment Experience:
(3) X (4).................................. 12.4316
(6) Cost of Insurance Based on a Standard Mor-
tality for a Male Insured.................. 16.392
(7) Cost of Insurance Based on a Preferred Mor-
tality for a Male Insured.................. 10.491
(8) Preferred Cost of Insurance Factor: (6) -
(7)........................................ 5.901
(9) Net Single Premium at End of Policy Month
61......................................... .37255
(10) Survivorship Factor at End of Policy Month
61......................................... .99971
(11) Change in Variable Death Benefit: ((5) /
(8)) / ((9) X(10))......................... 49.22
</TABLE>
NET SINGLE PREMIUM. Net single premiums are used to convert the net
investment experience of a Policy into increases or decreases in the Variable
Death Benefit. Net single premiums do not depend upon the sex or underwriting
classification of the insured or any changes in the insured's health after a
Policy is issued. The net single premium increases as the insured
35
<PAGE>
advances in age; thus, larger dollar amounts of net investment experience are
required each policy month to result in the same increases in the Variable
Death Benefit.
TABLE OF NET SINGLE PREMIUMS
PER $1 OF PAID-UP LIFE INSURANCE
<TABLE>
<CAPTION>
ATTAINED AGE NET SINGLE PREMIUM
------------ ------------------
<S> <C>
5 .10668
15 .14423
25 .19603
35 .27029
45 .37161
55 .49487
65 .62838
75 .75072
85 .84957
95 .93140
</TABLE>
SURVIVORSHIP FACTOR. The Variable Death Benefit is not affected by the net
investment experience of the Policy's Sub-Accounts between Monthly Valuation
Dates; therefore, on a Monthly Valuation Date the net investment experience of
the immediately preceding policy month is allocated to the Variable Death
Benefits only of Policies whose insureds survive until that Monthly Valuation
Date. This procedure is accounted for by adjusting the net single premium by
the survivorship factor. The survivorship factor is based on the cost of
insurance rate used to calculate the cost of insurance during the given policy
month. The survivorship factor equals 1 minus the cost of insurance rate for
the insured. (See Appendix D.) This factor varies by the sex (if the Policy is
sex-based), risk classification and age of the insured and increases the
change in the Variable Death Benefit otherwise calculated.
36
<PAGE>
APPENDIX C
HOW THE AMOUNT PROVIDED FOR INVESTMENT IN A POLICY'S SUB-ACCOUNTS RELATES TO
NET CASH VALUE
Except on a Policy's Monthly Valuation Date, the amount provided for
investment in a Policy's Sub-Accounts will exceed the Policy's net cash value.
The net cash value reflects a daily adjustment for the cost of insurance while
the corresponding adjustment to the amount provided for investment in a
Policy's Sub-Accounts is made only on a Policy's Monthly Valuation Date. Thus,
the amount provided for investment in a Policy's Sub-Accounts is not a measure
of the net cash value except on the Monthly Valuation Date.
EXAMPLE: Using the Policy illustrated on page 33 and assuming a hypothetical
constant gross annual rate of return of 8% (equivalent to a net investment
experience at a constant annual rate of 7.12%), the amount provided for
investment and net cash value in a Policy's Sub-Accounts would change as
follows from the Policy's 60th Monthly Valuation Date to the Policy's 61st
Monthly Valuation Date, assuming all premiums are paid when due:
<TABLE>
<S> <C>
(1) Net Cash Value and Amount Provided for Investment on 60th Monthly
Valuation Date................................................... $3,847.81
(2) Net Annual Premium............................................... 859.51
---------
(3) Amount Provided for Investment at Beginning of Policy Month 61:
(1) + (2)........................................................ 4,707.32
(4) Annual Rate of Net Investment Experience (.0718)................. .005478
(5) Net Investment Experience: (3) X (4)............................. 27.06
(6) Amount Provided for Investment Immediately Prior to End of Policy
Month 61: (3) + (5).............................................. 4,734.39
(7) Cost of Insurance During Policy Month 61......................... 16.15
(8) Net Cash Value and Amount Provided for Investment End of Policy
Month 61: (6) - (7).............................................. 4,718.24
</TABLE>
37
<PAGE>
APPENDIX D
PREFERRED OR FEMALE COST OF INSURANCE FACTOR
For preferred risk and female insured's Policies, the Variable Death Benefit
otherwise calculated on the Policy's Monthly Valuation Date will be adjusted
to reflect a cost of insurance factor. If the annual net investment experience
of the Policy's Sub-Accounts is greater than the monthly equivalent of the
Policy's Assumed Interest Rate, the adjustment will increase the amount by
which the Variable Death Benefit would otherwise increase. If the net
investment experience of the Policy's Sub-Accounts is less than the monthly
equivalent of the Policy's Assumed Interest Rate, the adjustment will reduce
the amount by which the Variable Death Benefit would otherwise decrease, or
occasionally cause the Variable Death Benefit to increase slightly when it
would otherwise decrease.
The amount of the adjustment is the cost of insurance factor divided by the
net single premium for the insured's age. (See "Cash Value of the Policy" and
Appendix B.) The cost of insurance factor equals the difference between (i)
the hypothetical cost of insurance deducted from the Policy's cash value,
calculated using the standard male cost of insurance rate for an insured of
the same attained age as the given insured and (ii) the actual cost of
insurance deducted from the Policy's cash value, calculated using the
respective cost of insurance rate for the given insured at his or her attained
age.
The following table illustrates monthly standard and preferred cost of
insurance rates per $1 of the amount at risk for a Policy. As of a Policy's
Monthly Valuation Date, the Policy's amount at risk equals the Policy's
Variable Death Benefit minus the Policy's cash value.
LIMITED PAYMENT VARIABLE LIFE POLICY COST OF INSURANCE RATES
<TABLE>
<CAPTION>
INSURED IN GROUP
MALE INSURED FEMALE INSURED WHERE UNISEX RATES APPLY
----------------------------- ----------------------------- -----------------------------
PREFERRED STANDARD PREFERRED STANDARD PREFERRED STANDARD
ATTAINED COST OF COST OF COST OF COST OF COST OF COST OF
AGE INSURANCE RATE INSURANCE RATE INSURANCE RATE INSURANCE RATE INSURANCE RATE INSURANCE RATE
- -------- -------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
5 -- .0001125 -- .0001103 -- .0001122
15 -- .0001217 -- .0001034 -- .0001189
25 .0001062 .0001608 .0001062 .0001488 .0001062 .0001590
35 .0001527 .0002092 .0001464 .0002050 .0001518 .0002085
45 .0002853 .0004458 .0002586 .0003901 .0002813 .0004375
55 .0008233 .0010833 .0006825 .0008667 .0008022 .0010508
65 .0021167 .0026458 .0017859 .0021431 .0020671 .0025704
75 .0054496 .0061142 .0048913 .0053805 .0053591 .0060041
85 .0131598 .0134283 .0126226 .0127569 .0130792 .0133376
95 .0291529 .0292700 .0287682 .0288519 .0290952 .0292073
</TABLE>
Congress has under consideration legislation which would prohibit insurance
premiums from varying based on sex. Also, in 1983 the United States Supreme
Court held that certain insurance policies, the benefits under which vary
based on sex, may not be used to fund certain employer-sponsored benefit plans
and fringe benefit programs. (See "Group or Sponsored Arrangements".)
38
<PAGE>
APPENDIX E
INVESTMENT EXPERIENCE INFORMATION
The information contained in this Appendix gives hypothetical illustrations
of the Variable Account's and the Policy's investment experience based on the
historical investment experience of the New England Zenith Fund. It does not
represent what may happen in the future.
The New England Zenith Fund and the Variable Account commenced operations on
August 26, 1983. The Stock Index and Managed Series of the New England Zenith
Fund commenced operations on May 1, 1987. The illustrations are based on the
actual investment experience of the New England Zenith Fund for the periods
shown (and reflect actual charges and expenses incurred by the New England
Zenith Fund), and reflect a charge for mortality and expense risks against the
Variable Account's assets at an annual rate of .35%. The illustrations assume
that annual premiums are paid at the beginning of each year and that no loans,
transfers or other Policy Owner transactions were made during the periods
shown.
VARIABLE ACCOUNT INVESTMENT EXPERIENCE
The Policies are supported by the Variable Account which invests in the New
England Zenith Fund. The investment experience of the sub-account or sub-
accounts chosen by Policy Owners will affect the values and benefits of their
Policies.
Many factors in addition to investment experience will affect the actual
values and benefits of a particular Policy. For instance, these investment
experience figures do not reflect the charges deducted from premiums and cost
of insurance charges. (See "Charges Deducted From Premiums", and "How are
Changes in the Variable Death Benefit and cash value different for a preferred
risk Policy, a female insured's Policy and a non-sex-based Policy?")
NET RATES OF RETURN
The annual net rate of return is the effective earnings rate at which the
investment sub-accounts have increased or decreased over a one year period.
The rate is calculated by taking the difference between the sub-accounts'
ending values and beginning values of the period and dividing it by the
beginning values of the period.
The effective annual net rate of return since inception is the annualized
effective interest rate at which the sub-accounts increased or decreased since
the inception dates of the sub-accounts. For each sub-account, the rate is
calculated by taking the difference between the sub-account's ending value and
the value on the date of its inception and dividing it by the value on the
date of inception. This result is the total net rate of return since inception
("Total Return"). The effective annual net rate of return is the rate which,
if compounded annually, would equal the total net rate of return since
inception.
<TABLE>
<CAPTION>
ANNUAL NET RATE OF RETURN 8/26/83- 8/26/83-
----------------------------------- 12/31/87 12/31/87
1/1/84- 1/1/85- 1/1/86- 1/1/87- TOTAL EFFECTIVE
SUB-ACCOUNT 12/31/84 12/31/85 12/31/86 12/31/87 RETURN ANNUAl
- ----------- -------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Capital Growth*.......... -0.71% 67.51% 94.53% 52.17% 435.35% 47.05%
Bond Income.............. 12.38% 18.34% 14.43% 1.91% 59.63% 11.35%
Money Market............. 10.23% 7.88% 6.43% 6.16% 38.63% 7.80%
<CAPTION>
5/1/87-
12/31/87
TOTAL
SUB-ACCOUNT RETURN
- ----------- ---------
<S> <C>
Stock Index........................................................... -12.40%
Managed............................................................... -0.89%
</TABLE>
POLICY PERFORMANCE
The material below assumes, in the first example, a Policy was issued with a
$105,645 face amount and annual premiums of $2,000, paid on August 26 of each
year (May 1 in the case of the Stock Index and Managed Sub-Accounts), to a
preferred risk male, age 35. The second example assumes a Policy was issued
with a $105,645 face amount and annual premiums of $2,000, paid on August 26
of each year (May 1 in the case of the Stock Index and Managed Sub-Accounts),
to a female, age 35. The death benefits, cash values, and internal rates of
return assume in each instance that the entire policy value was
39
<PAGE>
invested in the particular sub-account for the period shown. These
illustrations or Policy investment experience also reflect all charges
applicable to the Policy, including cost of insurance charges for insureds of
the age, sex and risk classification shown. (See Appendix A for the definition
of the internal rate of return.)
PREFERRED RISK MALE, AGE 35
CAPITAL GROWTH SUB-ACCOUNT*
<TABLE>
<CAPTION>
INTERNAL
RATE OF
MINIMUM VARIABLE NET RETURN ON
PREMIUMS DEATH DEATH CASH NET CASH
DATE PAID BENEFIT BENEFIT VALUE VALUE
- ---- -------- ------- -------- ----- ---------
<S> <C> <C> <C> <C> <C>
August 26, 1983.................... $ 2,000 $105,645 $105,645 $ 1,139 --
December 31, 1983.................. 2,000 105,645 106,067 1,175 -78.32%
December 31, 1984.................. 4,000 105,645 106,114 2,634 -41.39
December 31, 1985.................. 6,000 105,645 112,431 6,182 2.23
December 31, 1986.................. 8,000 105,645 132,392 13,430 29.44
December 31, 1987.................. 10,000 105,645 150,561 21,535 33.81
BOND INCOME SUB-ACCOUNT
<CAPTION>
INTERNAL
RATE OF
MINIMUM VARIABLE NET RETURN ON
PREMIUMS DEATH DEATH CASH NET CASH
DATE PAID BENEFIT BENEFIT VALUE VALUE
- ---- -------- ------- -------- ----- ---------
<S> <C> <C> <C> <C> <C>
August 26, 1983.................... $ 2,000 $105,645 $105,645 $ 1,139 --
December 31, 1983.................. 2,000 105,645 105,821 1,108 -81.68%
December 31, 1984.................. 4,000 105,645 106,765 2,837 -35.11
December 31, 1985.................. 6,000 105,645 108,618 4,905 -14.40
December 31, 1986.................. 8,000 105,645 110,795 7,100 -6.39
December 31, 1987.................. 10,000 105,645 110,417 8,781 -5.52
MONEY MARKET SUB-ACCOUNT
<CAPTION>
INTERNAL
RATE OF
MINIMUM VARIABLE NET RETURN ON
PREMIUMS DEATH DEATH CASH NET CASH
DATE PAID BENEFIT BENEFIT VALUE VALUE
- ---- -------- ------- -------- ----- ---------
<S> <C> <C> <C> <C> <C>
August 26, 1983.................... $ 2,000 $105,645 $105,645 $ 1,139 --
December 31, 1983.................. 2,000 105,645 105,801 1,110 -81.59%
December 31, 1984.................. 4,000 105,645 106,414 2,743 -38.02
December 31, 1985.................. 6,000 105,645 107,105 4,457 -20.87
December 31, 1986.................. 8,000 105,645 107,772 6,223 -13.31
December 31, 1987.................. 10,000 105,645 108,553 8,167 -8.58
STOCK INDEX SUB-ACCOUNT
<CAPTION>
INTERNAL
RATE OF
MINIMUM VARIABLE NET RETURN ON
PREMIUMS DEATH DEATH CASH NET CASH
DATE PAID BENEFIT BENEFIT VALUE VALUE
- ---- -------- ------- -------- ----- ---------
<S> <C> <C> <C> <C> <C>
May 1, 1987........................ $ 2,000 $105,645 $105,645 $ 1,139 --
December 31, 1987.................. 2,000 105,645 105,019 900 -69.71%
MANAGED SUB-ACCOUNT
<CAPTION>
INTERNAL
RATE OF
MINIMUM VARIABLE NET RETURN ON
PREMIUMS DEATH DEATH CASH NET CASH
DATE PAID BENEFIT BENEFIT VALUE VALUE
- ---- -------- ------- -------- ----- ---------
<S> <C> <C> <C> <C> <C>
May 1, 1987........................ $ 2,000 $105,645 $105,645 $ 1,139 --
December 31, 1987.................. 2,000 105,645 105,580 1,021 -63.42%
</TABLE>
40
<PAGE>
FEMALE, AGE 35
CAPITAL GROWTH SUB ACCOUNT*
<TABLE>
<CAPTION>
INTEREST
RATE OF
MINIMUM VARIABLE NET RETURN ON
PREMIUMS DEATH DEATH CASH NET CASH
DATE PAID BENEFIT BENEFIT VALUE VALUE
- ---- -------- -------- -------- ------- ---------
<S> <C> <C> <C> <C> <C>
August 26, 1983.................... $ 2,000 $105,645 $105,645 $ 1,139 --
December 31, 1983.................. 2,000 105,645 106,077 1,177 -78.21%
December 31, 1984.................. 4,000 105,645 106,156 2,646 -41.02
December 31, 1985.................. 6,000 105,645 112,547 6,216 2.64
December 31, 1986.................. 8,000 105,645 132,692 13,520 29.84
December 31, 1987.................. 10,000 105,645 151,081 21,699 34.16
BOND INCOME SUB-ACCOUNT
<CAPTION>
INTEREST
RATE OF
MINIMUM VARIABLE NET RETURN ON
PREMIUMS DEATH DEATH CASH NET CASH
DATE PAID BENEFIT BENEFIT VALUE VALUE
- ---- -------- -------- -------- ------- ---------
<S> <C> <C> <C> <C> <C>
August 26, 1983.................... $ 2,000 $105,645 $105,645 $ 1,139 --
December 31, 1983.................. 2,000 105,645 105,831 1,110 -81.59%
December 31, 1984.................. 4,000 105,645 106,809 2,850 -34.71
December 31, 1985.................. 6,000 105,645 108,711 4,932 -14.02
December 31, 1986.................. 8,000 105,645 110,956 7,148 -6.03
December 31, 1987.................. 10,000 105,645 110,646 8,853 -5.17
MONEY MARKET SUB-ACCOUNT
<CAPTION>
INTEREST
RATE OF
MINIMUM VARIABLE NET RETURN ON
PREMIUMS DEATH DEATH CASH NET CASH
DATE PAID BENEFIT BENEFIT VALUE VALUE
- ---- -------- -------- -------- ------- ---------
<S> <C> <C> <C> <C> <C>
August 26, 1983.................... $ 2,000 $105,645 $105,645 $ 1,139 --
December 31, 1983.................. 2,000 105,645 105,811 1,113 -81.44%
December 31, 1984.................. 4,000 105,645 106,456 2,755 -37.65
December 31, 1985.................. 6,000 105,645 107,190 4,482 -20.49
December 31, 1986.................. 8,000 105,645 107,915 6,266 -12.95
December 31, 1987.................. 10,000 105,645 108,772 8,236 -8.22
STOCK INDEX SUB-ACCOUNT
<CAPTION>
INTEREST
RATE OF
MINIMUM VARIABLE NET RETURN ON
PREMIUMS DEATH DEATH CASH NET CASH
DATE PAID BENEFIT BENEFIT VALUE VALUE
- ---- -------- -------- -------- ------- ---------
<S> <C> <C> <C> <C> <C>
May 1, 1987........................ $ 2,000 $105,645 $105,645 $ 1,139 --
December 31, 1987.................. 2,000 105,645 105,033 904 -69.51%
MANAGED SUB-ACCOUNT
<CAPTION>
INTEREST
RATE OF
MINIMUM VARIABLE NET RETURN ON
PREMIUMS DEATH DEATH CASH NET CASH
DATE PAID BENEFIT BENEFIT VALUE VALUE
- ---- -------- -------- -------- ------- ---------
<S> <C> <C> <C> <C> <C>
May 1, 1987........................ $ 2,000 $105,645 $105,645 $ 1,139 --
December 31, 1987.................. 2,000 105,645 105,596 1,025 -63.21%
</TABLE>
- --------
* Rates of return and Policy values and benefits shown reflect the Capital
Growth Series investment advisory fee of .50% of average daily net assets
for the period through December 31, 1987. Beginning January 1, 1988, the
maximum investment advisory fee of the Capital Growth Series is .70% of
average daily net assets.
41
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT
OF
NEW ENGLAND VARIABLE LIFE INSURANCE COMPANY
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Policy Owners
of New England Variable Life Insurance Company:
We have examined the statement of assets and liabilities of New England
Variable Life Insurance Company Variable Life Separate Account as of December
31, 1987 and the related statement of operations for the year then ended and
the statement of changes in net assets for each of the two years in the period
then ended. Our examinations were made in accordance with generally accepted
auditing standards and, accordingly, included such tests of the accounting
records and such other auditing procedures as we considered necessary in the
circumstances.
In our opinion, the financial statements referred to above present fairly the
net assets of New England Variable Life Insurance Company Variable Life
Separate Account at December 31, 1987, the results of its operations for the
year then ended and the changes in its net assets for each of the two years in
the period then ended in conformity with generally accepted accounting
principles applied on a consistent basis.
Coopers & Lybrand
Boston, Massachusetts
February 17, 1988
42
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF NEW ENGLAND VARIABLE LIFE
INSURANCE COMPANY
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1987
<TABLE>
<CAPTION>
BOND MONEY
CAPITAL INCOME MARKET STOCK MANAGED
GROWTH SUB- SUB- INDEX SUB-
SUB-ACCOUNT ACCOUNT ACCOUNT SUB-ACCOUNT ACCOUNT TOTAL
----------- ---------- ---------- ----------- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Investments in The New England
Zenith Fund, Inc. at market value
(Note 2)........................... $24,200,395 $1,239,791 $5,081,788 $243,261 $2,710,142 $33,475,377
Capital Growth Sub-
Account at cost........ $26,184,708
Bond Income Sub-Account
at cost................ $ 1,358,753
Money Market Sub-Account
at cost................ $ 5,081,788
Stock Index Sub-Account
at cost................ $ 306,516
Managed Sub-Account at
cost................... $ 2,917,445
Amount due & accrued from policy-
related transactions............... (8,492) (646) 393 33 16,854 8,142
Dividends receivable................ -- -- 27,016 -- -- 27,016
----------- ---------- ---------- -------- ---------- -----------
Total assets.................... 24,191,903 1,239,145 5,109,197 243,294 2,726,996 33,510,535
LIABILITIES
Due New England Variable Life
Insurance Company.................. 2,443,328 193,777 673,803 25,618 224,817 3,561,343
----------- ---------- ---------- -------- ---------- -----------
Total liabilities............... 2,443,328 193,777 673,803 25,618 224,817 3,561,343
----------- ---------- ---------- -------- ---------- -----------
NET ASSETS--for Variable Life
Insurance Policies................. $21,748,575 $1,045,368 $4,435,394 $217,676 $2,502,179 $29,949,192
=========== ========== ========== ======== ========== ===========
</TABLE>
See Notes to Financial Statements.
43
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF NEW ENGLAND VARIABLE LIFE
INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1987
<TABLE>
<CAPTION>
CAPITAL BOND MONEY STOCK
GROWTH INCOME MARKET INDEX MANAGED
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT TOTAL
----------- ----------- ----------- ----------- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
INCOME
Dividends............... $ 3,554,895 $ 174,490 $143,196 $ 7,350 $ 74,471 $ 3,954,402
EXPENSE
Mortality and expense
risk charge (Note 3). 44,869 2,545 9,035 365 3,245 60,059
----------- --------- -------- -------- --------- -----------
Net income............ 3,510,026 171,945 134,161 6,985 71,226 3,894,343
NET REALIZED AND
UNREALIZED LOSS ON
INVESTMENTS
Net unrealized
depreciation on
investments
Beginning of period... 1,332,298 30,304 -- -- -- 1,362,602
End of period......... (1,984,313) (118,962) -- (63,255) (207,303) (2,373,833)
----------- --------- -------- -------- --------- -----------
Unrealized depreciation. (3,316,611) (149,266) -- (63,255) (207,303) (3,736,435)
Realized gain (loss) on
investments............ 3,179 (1,503) -- (10,988) (12,214) (21,526)
----------- --------- -------- -------- --------- -----------
Net realized and
unrealized loss on
investments............ (3,313,432) (150,769) -- (74,243) (219,517) (3,757,961)
----------- --------- -------- -------- --------- -----------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM OPERATIONS........ $ 196,594 $ 21,176 $134,161 $(67,258) $(148,291) $ 136,382
=========== ========= ======== ======== ========= ===========
</TABLE>
See Notes to Financial Statements.
44
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF NEW ENGLAND VARIABLE LIFE
INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1986 AND 1987
<TABLE>
<CAPTION>
BOND
CAPITAL INCOME MONEY STOCK MANAGED
GROWTH SUB- MARKET INDEX SUB-
SUB-ACCOUNT ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ACCOUNT TOTAL
----------- ---------- ------------ ----------- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
NET ASSETS DECEMBER 31,
1985................... $ 1,009,795 $ 94,679 $ 233,921 -- -- $ 1,338,395
=========== ========== ============ ======== ========== ===========
FROM INVESTMENT
ACTIVITIES
Net income.............. 265,251 21,281 25,441 -- -- 311,973
Net realized/unrealized
gain on investments.... 979,268 18,322 -- -- -- 997,590
----------- ---------- ------------ -------- ---------- -----------
Increase in net assets
derived from investment
activities............. 1,244,519 39,603 25,441 -- -- 1,309,563
FROM POLICY-RELATED
TRANSACTIONS
Net premiums transferred
from New England
Variable Life Insurance
Company................ 1,396,613 174,961 195,012 -- -- 1,766,586
Net transfers (to) from
other sub accounts..... (91,422) 82,107 9,315 -- -- --
Net transfers to New
England Variable Life
Insurance Company...... (748,382) (85,413) (132,704) -- -- (966,499)
----------- ---------- ------------ -------- ---------- -----------
Increase in net assets
derived from policy-
related transactions... 556,809 171,655 71,623 -- -- 800,087
----------- ---------- ------------ -------- ---------- -----------
Net increase in net
assets................. 1,801,328 211,258 97,064 -- -- 2,109,650
----------- ---------- ------------ -------- ---------- -----------
NET ASSETS DECEMBER 31,
1986................... $ 2,811,123 $ 305,937 $ 330,985 -- -- $ 3,448,045
=========== ========== ============ ======== ========== ===========
FROM INVESTMENT
ACTIVITIES
Net income.............. 3,510,026 171,945 134,161 6,985 71,226 3,894,343
Net realized/unrealized
loss on investments.... (3,313,432) (150,769) -- (74,243) (219,517) (3,757,961)
----------- ---------- ------------ -------- ---------- -----------
Increase (decrease) in
net assets derived from
investment activities.. 196,594 21,176 134,161 (67,258) (148,291) 136,382
FROM POLICY-RELATED
TRANSACTIONS
Net premiums transferred
from New England
Variable Life Insurance
Company................ 5,474,107 471,750 24,824,358 -- 55,569 30,825,784
Net transfers (to) from
other sub accounts..... 16,781,234 414,155 (20,337,778) 316,572 2,825,817 --
Net transfers to New
England Variable Life
Insurance Company...... (3,514,483) (167,650) (516,332) (31,638) (230,916) (4,461,019)
----------- ---------- ------------ -------- ---------- -----------
Increase in net assets
derived from policy-
related transactions... 18,740,858 718,255 3,970,248 284,934 2,650,470 26,364,765
----------- ---------- ------------ -------- ---------- -----------
Net increase in net
assets................. 18,937,452 739,431 4,104,409 217,676 2,502,179 26,501,147
----------- ---------- ------------ -------- ---------- -----------
NET ASSETS DECEMBER 31,
1987................... $21,748,575 $1,045,368 $ 4,435,394 $217,676 $2,502,179 $29,949,192
=========== ========== ============ ======== ========== ===========
</TABLE>
See Notes to Financial Statements.
45
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT
OF
NEW ENGLAND VARIABLE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
1. New England Variable Life Separate Account (the "Account") of New England
Variable Life Insurance Company ("NEVLICO"), was established by NEVLICO's
Board of Directors on January 31, 1983 in accordance with the regulations of
the Delaware Insurance Department. NEVLICO is a wholly-owned subsidiary of New
England Mutual Life Insurance Company ("The New England"). The Account is
registered as a unit investment trust under the Investment Company Act of
1940. The assets of the Account are owned by NEVLICO and may not be used to
satisfy any obligations that may arise out of any other business NEVLICO may
conduct.
2. The Account has five investment sub-accounts each of which invests in the
shares of one portfolio of The New England Zenith Fund, Inc. ("Zenith Fund").
The Zenith Fund is an open-end, diversified management investment company. The
Account purchases or redeems shares of the five portfolios of the Zenith Fund
based on the amount of net premiums invested in the Account, transfers among
the sub-accounts, policy loans, surrender payments, and death benefit
payments. The values of the shares of the Zenith Fund portfolios are
determined by the Zenith Fund as of 4:00 p.m. (New York City time) on each day
the New York Stock Exchange is open for trading and on each day during which
there is a sufficient degree of trading in the relevant Zenith portfolio
securities that the current net asset value or the Zenith shares might be
affected by the change in the value of such portfolio securities. Realized
gains and losses on the sale of the Zenith Fund shares are computed on the
basis of identified cost.
3. Certain deductions are made from each premium payment paid to NEVLICO to
arrive at a net premium that is transferred to the Account. These deductions
include sales load, administrative expenses, a risk charge and state premium
taxes. Charges for investment advisory fees, SEC registration expenses and
independent directors' compensation are deducted from the assets of the Zenith
Fund.
NEVLICO charges the Account for mortality and expense risks NEVLICO assumes.
The charge is made daily at an effective annual rate of .35% of the Account
assets attributable to fixed premium variable life policies and .45% of the
Account assets attributable to single premium variable life policies. In
addition, the cost of providing insurance protection is deducted monthly.
4. For federal income tax purposes the Account's operations are included with
those of NEVLICO. NEVLICO intends to make appropriate charges against the
Account in the future if and when tax liabilities arise.
46
<PAGE>
NEW ENGLAND VARIABLE LIFE INSURANCE COMPANY
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholder
of New England Variable Life Insurance Company:
We have examined the balance sheets of New England Variable Life Insurance
Company (a wholly-owned subsidiary of New England Mutual Life Insurance
Company) as of December 31, 1986 and 1987, and the related summaries of
operations, statements of stockholder's equity and cash flows for the years
then ended. Our examinations were made in accordance with generally accepted
auditing standards and, accordingly, included such tests of the accounting
records and such other auditing procedures as we considered necessary in the
circumstances.
In our opinion, the financial statements referred to above present fairly the
financial position of New England Variable Life Insurance Company at December
31, 1986 and 1987, and the results of its operations and cash flows for the
years then ended, in conformity with accounting practices prescribed or
permitted by the Insurance Department of the State of Delaware, which
practices are considered to be generally accepted accounting principles for
stock life subsidiaries of mutual life insurance companies, applied on a
consistent basis.
Coopers & Lybrand
Boston Massachusetts
February 17, 1988
47
<PAGE>
NEW ENGLAND VARIABLE LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY)
FINANCIAL STATEMENTS
BALANCE SHEETS
FOR THE YEARS ENDED DECEMBER 31, 1986 AND 1987
ASSETS
<TABLE>
<CAPTION>
1986 1987
---- ----
<S> <C> <C>
Bonds ................................................ $ 6,894,533 $ 6,973,481
Cash and short-term investments ...................... 1,567,752 17,896
Policy loans ......................................... 298,753 1,140,650
Accrued investment income ............................ 214,829 227,777
Premiums deferred and uncollected .................... 1,234,776 4,204,647
Separate account assets .............................. 4,158,691 33,510,535
Due from separate account, net ....................... 708,502 3,561,343
Other assets ......................................... 54,918 70,881
----------- -----------
Total assets ..................................... $15,132,754 $49,707,210
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Policy reserves ...................................... $ 1,433,403 $ 4,131,119
Due New England Mutual Life Insurance Company ........ 445,932 1,016,696
Federal income taxes payable ......................... 305,973 --
Separate account liabilities ......................... 4,158,691 33,510,535
Accrued expenses ..................................... 8,543 914,325
Other liabilities .................................... 34,942 818,134
----------- -----------
Total liabilities ................................ 6,387,484 40,390,809
Mandatory securities valuation reserve ............... 56,017 29,000
Stockholder's equity:
Common stock (shares authorized: 50,000; issued and
outstanding:
20,000 shares; par value $125) .................... 2,500,000 2,500,000
Paid-in capital in excess of par value ............. 5,000,000 10,000,000
Unassigned surplus ................................. 1,189,253 (3,212,599)
----------- -----------
Total stockholder's equity ....................... 8,689,253 9,287,401
----------- -----------
Total liabilities and stockholder's equity ....... $15,132,754 $49,707,210
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
48
<PAGE>
NEW ENGLAND VARIABLE LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY)
SUMMARIES OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1986 AND 1987
<TABLE>
<CAPTION>
1986 1987
---- ----
<S> <C> <C>
Revenues:
Insurance premiums.................................. $3,630,826 $39,231,707
Annuity deposits.................................... 29,966 40,080
Gross investment income............................. 880,022 831,092
---------- -----------
4,540,814 40,102,879
Expenses:
Death and surrender benefits........................ 230,474 475,369
Increase in policy reserves......................... 629,017 2,697,716
Management fees..................................... 448,004 2,422,457
Commissions......................................... 1,037,004 6,237,461
Net transfers to separate account................... 788,661 26,296,568
General and administrative.......................... 971,249 6,608,029
---------- -----------
4,104,409 44,737,600
---------- -----------
Gain (loss) before provision (credit) for taxes....... 436,405 (4,634,721)
Provision for (benefit of) federal income taxes....... 151,727 (305,973)
---------- -----------
Net gain (loss) from operations....................... $ 284,678 $(4,328,748)
========== ===========
STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1986 AND 1987
<CAPTION>
1986 1987
---- ----
<S> <C> <C>
Stockholder's equity--beginning of period............. $8,413,529 $ 8,689,253
Net gain (loss) from operations....................... 284,678 (4,328,748)
Transfer (to) from mandatory securities valuation
reserve.............................................. (1,499) 27,017
Change in non-admitted assets......................... (7,455) (100,121)
Paid in capital....................................... -- 5,000,000
---------- -----------
Stockholder's equity--end of period................... $8,689,253 $ 9,287,401
========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
49
<PAGE>
NEW ENGLAND VARIABLE LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1986 AND 1987
<TABLE>
<CAPTION>
1986 1987
---- ----
<S> <C> <C>
Cash flows from operating activities:
Premiums.......................................... $ 2,587,081 $ 35,014,649
Investment income................................. 797,969 533,641
Benefits.......................................... (233,909) (433,716)
Expenses and taxes................................ (1,997,304) (12,780,933)
Net transfers to separate account................. (1,058,933) (29,149,409)
Net increase in policy loans...................... (244,350) (841,897)
Other income (disbursements), net................. 163,729 1,184,372
----------- ------------
Net cash flows from operating activities........ 14,283 (6,473,293)
Cash flows from investing activities:
Proceeds of long-term investments sold, matured or
repaid (net of tax).............................. 500,000 500,000
Cost of long-term investments acquired............ (500,000) (576,563)
----------- ------------
Net cash flows from investing activities........ -- (76,563)
Cash flows from financing activities:
Additional paid-in surplus........................ -- 5,000,000
----------- ------------
Net cash flow....................................... 14,283 (1,549,856)
Cash and short-term investments, beginning of year.. 1,553,469 1,567,752
----------- ------------
Cash and short-term investments, end of year........ $ 1,567,752 $ 17,896
=========== ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
50
<PAGE>
NEW ENGLAND VARIABLE LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS
1. GENERAL:
New England Variable Life Insurance Company (the Company) is a wholly-owned
subsidiary of New England Mutual Life Insurance Company (The New England). The
Company is authorized to transact variable life insurance business.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The Company's financial statements have been prepared on the basis of
accounting practices prescribed or permitted by the Insurance Department of
the State of Delaware, which practices in the case of a wholly-owned stock
life insurance subsidiary of a mutual life insurance company, are also
considered to be in conformity with generally accepted accounting principles.
Certain reclassifications have been made to amounts previously reported in the
1986 financial statements to conform with the 1987 presentation. The
significant accounting practices followed by the Company are as follows:
INVESTMENTS
Values of bonds and short-term investments have been determined in
accordance with methods and values adopted by the National Association of
Insurance Commissioners. Bonds are carried at amortized cost. Short-term
investments are carried at cost.
Capital gains and losses, realized and unrealized, are reflected as direct
credits or charges to unassigned surplus. Realized capital gains or losses are
reflected net of applicable capital gains tax or benefit.
The mandatory securities valuation reserve is a required reserve established
to stabilize unassigned surplus from fluctuations in the market valuation of
securities. Changes in the reserve are accounted for as direct increases or
decreases in unassigned surplus.
SEPARATE ACCOUNT ASSETS
Assets (valued at market) and liabilities held in the separate account are
included as separate captions on the balance sheet. The summaries of
operations include the general account business and the net transfers to the
separate account. The separate account's net transfers, investment income,
realized and unrealized capital gains and losses, and investment expenses are
offset by corresponding increases or decreases in reserves required to provide
for future payments to policyholders. This presentation has no effect on
unassigned surplus.
POLICY RESERVES
Reserves for variable life insurance policies are maintained principally
using the Commissioners' Reserve Valuation Method with an assumed interest
rate of 4%.
Reserves held for funds accumulated prior to the purchase of annuities are
equal to the accumulated balance of the funds. Reserves for purchased
annuities are based on the 1951 Group Annuity Table projected by Scale C to
the year 2000 at 3 1/2% interest.
REVENUES AND EXPENSE
Annuity deposits are recognized as revenue when received. Expenses,
including commissions and other policy acquisition, maintenance and settlement
costs, are charged to operations as incurred.
Variable life premium revenues are recognized over the premium paying
period, while expenses, including the cost of new business, are charged to
operations as incurred.
51
<PAGE>
NEW ENGLAND VARIABLE LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS--CONTINUED
FEDERAL INCOME TAXES
Federal income taxes are provided on the basis of amounts estimated to be
payable under the Internal Revenue Code. The Company files a consolidated
federal income tax return with The New England and other affiliated life
insurance companies. Pursuant to a tax allocation agreement with The New
England, the Company provides for federal income taxes on a separate return
basis, with the Company receiving benefit for net operating loss carryforwards
recognized only to the extent they can be utilized on a separate company
basis.
3. RELATED PARTY TRANSACTIONS
Under the terms of a service agreement, The New England furnishes all
executive, legal, clerical, and other personnel services to the Company. The
management fees for such services amounted to $448,004 in 1986 and $2,422,457
in 1987.
All of the officers and directors of the Company are officers of The New
England.
On December 22, 1987, The New England contributed $5,000,000 of capital to
the Company.
4. FEDERAL INCOME TAXES:
A tax net operating loss carryforward of $4,818,000 arose in 1987.
Approximately $810,000 of this loss was utilized in 1987 to recover taxes
previously provided. At December 31, 1987, the net operating loss carryforward
available to offset future taxable income is approximately $4,008,000. The net
operating loss will expire in 2002.
52
<PAGE>
NEW ENGLAND VARIABLE LIFE
INSURANCE COMPANY
ZENITH LIFE--VARIABLE LIFE INSURANCE POLICIES
ZENITH LIFE ONE--SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICIES
SUPPLEMENT DATED MAY 1, 1995 TO
PROSPECTUS DATED MAY 1, 1988
INTRODUCTION
This supplement updates certain information contained in the prospectus
dated May 1, 1988, as supplemented February 1, 1989, May 1, 1991, May 1, 1992,
May 1, 1993 and May 1, 1994. You should read and retain this supplement with
your Policy. NEVLICO will send you an additional copy of the prospectus as
supplemented, without charge, on written request. The Zenith Life and Zenith
Life One Policies are no longer available for sale.
NEVLICO is a wholly-owned subsidiary of New England Mutual Life Insurance
Company. NEVLICO's Principal Administrative Office is 501 Boylston Street,
Boston, Massachusetts 02116.
THIS SUPPLEMENT IS NOT VALID UNLESS ACCOMPANIED OR PRECEDED BY THE CURRENT
PROSPECTUS OF THE NEW ENGLAND ZENITH FUND AND OF THE VARIABLE INSURANCE
PRODUCTS FUND AND VARIABLE INSURANCE PRODUCTS FUND II, WHICH ARE ATTACHED AT
THE END OF THIS SUPPLEMENT. THE SUPPLEMENT AND PROSPECTUSES SHOULD BE READ AND
RETAINED FOR FUTURE REFERENCE.
<PAGE>
GLOSSARY
ACCOUNT
A sub-account of the Variable Account or The Fixed Account.
INVESTMENTS OF THE VARIABLE ACCOUNT
The Variable Account currently has 16 sub-accounts, each of which invests in
the shares of an Eligible Fund. The sub-accounts of the Variable Account are:
-- The Zenith Money Market Sub-Account, which invests in the Back Bay
Advisors Money Market Series of the New England Zenith Fund (the "Zenith
Fund")
-- The Zenith Bond Income Sub-Account, which invests in the Back Bay
Advisors Bond Income Series of the Zenith Fund
-- The Zenith Capital Growth Sub-Account, which invests in the Capital
Growth Series of the Zenith Fund
-- The Zenith Stock Index Sub-Account, which invests in the Westpeak Stock
Index Series of the Zenith Fund
-- The Zenith Managed Sub-Account, which invests in the Back Bay Advisors
Managed Series of the Zenith Fund
-- The Zenith Value Growth Sub-Account, which invests in the Westpeak Value
Growth Series of the Zenith Fund
-- The Zenith Avanti Growth Sub-Account, which invests in the Loomis Sayles
Avanti Growth Series of the Zenith Fund
-- The Zenith Small Cap Sub-Account, which invests in the Loomis Sayles
Small Cap Series of the Zenith Fund
-- The Equity-Income Sub-Account, which invests in the Equity-Income
Portfolio of the Variable Insurance Products Fund (the "VIP Fund")
-- The Overseas Sub-Account, which invests in the Overseas Portfolio of the
VIP Fund
-- The High Income Sub-Account, which invests in the High Income Portfolio
of the VIP Fund
-- The Asset Manager Sub-Account, which invests in the Asset Manager
Portfolio of the Variable Insurance Products Fund II (the "VIP Fund II")
-- The Zenith Equity Growth Sub-Account, which invests in the Alger Equity
Growth Series of the Zenith Fund*
-- The Zenith Balanced Sub-Account, which invests in the Loomis Sayles
Balanced Series of the Zenith Fund*
-- The Zenith Value Sub-Account, which invests in the Venture Value Series
of the Zenith Fund*
-- The Zenith International Equity Sub-Account, which invests in the
Draycott International Equity Series of the Zenith Fund*
* Availability of these Sub-accounts is subject to any necessary state
insurance department approvals.
The Zenith Fund is an open-end diversified management investment company,
more commonly known as a mutual fund. The Zenith Fund was established by The
New England as an investment vehicle for separate investment accounts of
NEVLICO and of other life insurance companies. Currently the Zenith Fund is
the funding vehicle for the Variable Account and for separate accounts of The
New England and NEVLICO that issue variable annuity contracts.
The VIP Fund and VIP Fund II are open-end, diversified management investment
companies (mutual funds) that serve as the investment vehicles for variable
life insurance and variable annuity separate accounts of various insurance
companies. The VIP Fund and VIP Fund II were organized by Fidelity Management
& Research Company.
Shares of the Eligible Funds are purchased and sold by the Variable Account
at their net asset value (without a deduction for sales load) determined as of
the close of regular trading on the New York Stock Exchange on each day when
the exchange is open for trading.
The investment objectives of the Eligible Funds' portfolios are described
briefly below. There is, of course, no assurance that these objectives will be
met. A full description of the Eligible Funds, including their investment
objectives and policies,
2
<PAGE>
expenses, and the risks of investing in the Eligible Funds, is contained in
the attached Eligible Fund prospectuses, as well as in the Zenith Fund's
Statement of Additional Information, which is referenced in the Zenith Fund
prospectus, and in the Statement of Additional Information for the VIP Fund
and VIP Fund II, which is referenced in those Funds' prospectus.
The Zenith Back Bay Advisors Money Market Series' investment objective is to
provide the highest possible level of current income consistent with
preservation of capital. The Series seeks to achieve its objective through
investment in a managed portfolio of high quality money market instruments.
Money market funds are neither insured nor guaranteed by the U.S. Government
and there can be no assurance that the Series will maintain a stable net asset
value of $100 per share.
The Zenith Back Bay Advisors Bond Income Series' investment objective is to
provide a high level of current income consistent with preservation of capital
and moderate investment risk. The Series seeks to achieve its objective
through investment primarily in an investment quality bond portfolio.
The Zenith Capital Growth Series' investment objective is long-term growth
of capital though investment primarily in equity securities.
The Zenith Westpeak Stock Index Series' investment objective is to provide
investment results that correspond to the composite price and yield
performance of United States publicly traded common stocks. The Series
currently seeks to achieve its objective by attempting to duplicate the
composite price and yield performance of the Standard & Poor's 500 Composite
Stock Price Index.
The Zenith Back Bay Advisors Managed Series' investment objective is to
provide a favorable total investment return through investment in a
diversified portfolio. The Series' portfolio is expected to include (i) common
stocks, (ii) notes and bonds and (iii) money market instruments.
The Zenith Westpeak Value Growth Series' investment objective is long-term
total return (capital appreciation and dividend income) through investment in
equity securities. Emphasis will be given to both undervalued securities
("value" style) and securities of companies with growth potential ("growth"
style).
The Zenith Loomis Sayles Avanti Growth Series' investment objective is long-
term growth of capital. The Series normally will invest primarily in equity
securities of companies with medium and large capitalization (capitalization
of $1 billion to $5 billion and over $5 billion, respectively), but will also
invest a portion of its assets in equity securities of companies with
relatively small market capitalization (under $1 billion).
The Zenith Loomis Sayles Small Cap Series' investment objective is long-term
capital growth from investments in common stock or their equivalent. The
Series will normally invest at least 65% of its total assets in companies with
market capitalization of less than $500 million.
The Zenith Loomis Sayles Balanced Series' investment objective is reasonable
long-term investment return from a combination of long-term capital
appreciation and moderate current income. The Series is "flexibly managed" in
that sometimes it invests more heavily in equity securities and at other times
it invests more heavily in fixed-income securities. Under normal conditions,
the series will invest at least 25% of its assets in bonds and at least 50% of
its assets in common stocks.
The Zenith Draycott International Equity Series' investment objective is to
seek total return from long-term growth of capital and dividend income. The
series will invest primarily in common stocks of issuers either headquartered
outside the U.S. or deriving a substantial part of their revenues from
countries outside of the U.S.
The Zenith Venture Value Series' investment objective is growth of capital.
The Series will primarily invest in domestic common stocks (and securities
convertible into common stock) that the Series' subadviser believes have
capital growth potential due to factors such as undervalued assets or earnings
potential, product development and demand, favorable operating ratios,
resources for expansion, management abilities, reasonableness of market price,
and favorable overall business prospects. The Series will generally invest
predominantly in equity securities of companies with market capitalizations of
at least $250 million.
The Zenith Alger Equity Growth Series' investment objective is to seek long-
term capital appreciation. The Series' assets will be invested primarily in a
diversified, actively managed portfolio of equity securities, with a majority
of issuers having a total market capitalization of $1 billion or greater.
The VIP Fund Equity-Income Portfolio's investment objective is to seek
reasonable income by investing primarily in income-producing equity
securities. In choosing these securities, the Equity-Income Portfolio will
also consider the potential for capital appreciation.
3
<PAGE>
The VIP Fund Overseas Portfolio's investment objective is long-term growth
of capital primarily through investments in foreign securities. The Overseas
Portfolio provides a means for investors to diversify their own portfolio by
participating in companies and economies outside of the United States.
The VIP Fund High Income Portfolio's investment objective is to obtain a
high level of current income by investing primarily in high-yielding, lower-
rated, fixed-income securities, while also considering growth of capital.
High-yielding, lower-rated debt securities present higher risks of untimely
interest and principal payments, default and price volatility than higher-
rated securities, and may present problems of liquidity and valuation.
The VIP Fund II Asset Manager Portfolio's investment objective is to seek
high total return with reduced risk over the long-term by allocating its
assets among domestic and foreign stocks, bonds and short-term fixed-income
instruments.
INVESTMENT MANAGEMENT
The adviser and sub-adviser for each series of the Zenith Fund are listed in
the chart below. TNE Advisers, which is a subsidiary of The New England, and
each of the sub-advisers are registered with the SEC as investment advisers
under the Investment Advisers Act of 1940.
<TABLE>
<CAPTION>
SERIES ADVISER SUB-ADVISER
------ ------- -----------
<S> <C> <C>
Capital Growth Capital Growth Management
Limited
Partnership ("CGM")*
Back Bay Advisers Money TNE Advisers, Inc. Back Bay Advisors, L.P.**
Market
Back Bay Advisors Bond TNE Advisers, Inc. Back Bay Advisors, L.P.**
Income
Back Bay Advisors Man- TNE Advisers, Inc. Back Bay Advisors, L.P.**
aged
Westpeak Stock Index TNE Advisers, Inc. Westpeak Investment
Advisors, L.P.**
Westpeak Value Growth TNE Advisers, Inc. Westpeak Investment
Advisors, L.P.**
Loomis Sayles Avanti TNE Advisers, Inc. Loomis, Sayles & Company, L
Growth .P.**
Loomis Sayles Small Cap TNE Advisers, Inc Loomis, Sayles & Company,
L.P.**
Loomis Sayles Balanced TNE Advisers, Inc. Loomis, Sayles & Company,
L.P.**
Draycott International TNE Advisers, Inc. Draycott Partners, Ltd.**
Equity
Venture Value TNE Advisers, Inc. Selected/Venture Advisers,
L.P.
Alger Equity Growth TNE Advisers, Inc. Fred Alger Management, Inc.
</TABLE>
- --------
*An affiliate of The New England
**An indirect subsidiary of The New England
In the case of the Back Bay Advisors Money Market Series, Back Bay Advisors
Bond Income Series, Back Bay Advisors Managed Series, Westpeak Stock Index
Series, Westpeak Value Growth Series, Loomis Sayles Avanti Growth Series and
Loomis Sayles Small Cap Series, TNE Advisers became the adviser on May 1,
1995. Prior to that date those series were advised by their current sub-
adviser, except as follows. The New England itself served as investment
adviser to the Money Market and Bond Income Series until September 10, 1986
when Back Bay Advisors assumed The New England's responsibilities under the
investment advisory agreements with those Series. Back Bay Advisors served as
investment adviser to the Stock Index Series until August 2, 1993, when
Westpeak became the investment adviser. The Capital Growth Series was managed
by Loomis, Sayles until March 1, 1990, when its Capital Growth Management
Division was reorganized into CGM.
The Zenith Fund Series incur charges for advisory fees and certain other
expenses. Under a voluntary expense cap by TNE Advisers for each of the
Capital Growth, Back Bay Advisors Bond Income, Back Bay Advisors Money Market,
Back Bay Advisors Managed, Westpeak Stock Index, Westpeak Value Growth and
Loomis Sayles Avanti Growth Series, TNE Advisers will bear those expenses
(other than the management fee) that exceed 0.15% of average daily net assets;
for the Loomis Sayles Small Cap Series, TNE Advisers will bear all expenses
that exceed 1.00% of average daily net assets. For the remaining Zenith Fund
Series TNE Advisers, under a voluntary expense deferral arrangement, will bear
those expenses (other than the management fee) which exceed a certain limit in
the year in which they are incurred and will charge those expenses to the
series in a future year when actual expenses of the series are below the
limit. The expense cap and expense deferral arrangement may be terminated at
any time.
4
<PAGE>
The following table shows the annual operating expenses for each series,
based on actual expenses incurred for 1994, after giving effect to the
applicable expense cap or expense deferral arrangement.
ANNUAL OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS AFTER EXPENSE CAP)
<TABLE>
<CAPTION>
BACK BACK
BAY BAY BACK LOOMIS LOOMIS
ADVISORS ADVISORS BAY WESTPEAK WESTPEAK SAYLES SAYLES
CAPITAL BOND MONEY ADVISORS STOCK VALUE AVANTI SMALL
GROWTH INCOME MARKET MANAGED INDEX GROWTH GROWTH CAP
SERIES SERIES SERIES SERIES SERIES SERIES SERIES SERIES
------- -------- -------- -------- -------- -------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fee.......... .65% .40% .35% .50% .25% .70% .70% 1.00%
Other Expenses.......... .05% .14% .15% .14% .15% .15% .15% --
---- ---- ---- ---- ---- ---- ---- -----
Total Series Operating
Expenses.............. .70% .54% .50% .64% .40% .85% .85% 1.00%
</TABLE>
ANNUAL OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS AFTER EXPENSE DEFERRAL)
<TABLE>
<CAPTION>
LOOMIS ALGER
SAYLES DRAYCOTT VENTURE EQUITY
BALANCED INTERNATIONAL VALUE GROWTH
SERIES EQUITY SERIES SERIES SERIES
-------- ------------- ------- ------
<S> <C> <C> <C> <C>
Management Fee........................... .70% .90% .75% .70%
Other Expenses........................... .15% .40% .15% .15%
---- ----- ---- ----
Total Series Operating Expenses......... .85% 1.30% .90% .85%
</TABLE>
For more information about the Series' advisory agreements, see the Zenith
Fund prospectus attached at the end of the prospectus and the Zenith Fund's
Statement of Additional Information.
The investment adviser for the VIP Fund and VIP Fund II is Fidelity
Management & Research Company, a registered investment adviser under the
Investment Advisers Act of 1940. The Portfolios of the VIP Fund and VIP Fund
II, as part of their operating expenses, pay investment management fees to
Fidelity Management & Research Company. The Portfolios also bear certain other
expenses. For the year ended December 31, 1994, the total operating expenses
of the Portfolios, as a percentage of Portfolio average net assets, were as
follows:
<TABLE>
<CAPTION>
TOTAL
PORTFOLIO MANAGEMENT FEES OTHER EXPENSES ANNUAL EXPENSES
--------- --------------- -------------- ---------------
<S> <C> <C> <C>
Equity-Income .52% .06% .58%*
Overseas .77% .15% .92%
High Income .61% .10% .71%
Asset Manager .72% .08% .80%*
</TABLE>
- --------
* A portion of the brokerage commissions the portfolio paid was used to reduce
its expenses. Without this reduction total operating expenses would have
been .60% for the Equity-Income Portfolio and .81% for the Asset Manager
Portfolio.
Fidelity Management & Research Company is the original Fidelity company and
was founded in 1946. It provides a number of mutual funds and other clients
with investment research and portfolio management services. It maintains a
large staff of experienced investment personnel and a full complement of
related support facilities. As of December 31, 1994, it advised funds having
more than 22 million shareholder accounts with a total value of more than $250
billion. For more information regarding the Equity-Income, Overseas, High
Income, and Asset Manager Portfolios and Fidelity Management & Research
Company, see the VIP Fund and VIP Fund II prospectus attached at the end of
this prospectus and their Statement of Additional Information.
INVESTMENT OPTIONS (ZENITH LIFE POLICIES ONLY)
You may allocate your Policy's scheduled premiums among the sub-accounts of
the Variable Account in any combination. A minimum of 10% of the premium or
payment must be allocated to each sub-account selected. Percentages allocated
must be in whole numbers. Your Policy's cash value may be distributed among no
more than ten accounts (including the Fixed Account) at any one time.
You make the initial allocation when you apply for a Policy. You may change
the allocation of future premiums at any time thereafter. The change will be
effective for scheduled premiums due after the date when NEVLICO receives your
request. You
5
<PAGE>
may request the change by telephone or by written request in a form
satisfactory to NEVLICO. (See "Receipt of Communications and Payments at
NEVLICO's Administrative Office.")
See "Transfer Option" below for information on how to request a transfer or
reallocation by telephone.
TRANSFER OPTION
After the Right to Return the Policy period, you may transfer your Policy's
cash value between sub-accounts up to four times in a policy year without
NEVLICO's consent. NEVLICO currently allows 12 sub-account transfers per
policy year. All sub-account transfer requests made at the same time will be
treated as a single request. The transfer will be effective as of the date
when NEVLICO receives the transfer request at its Administrative Office. (See
"Receipt of Communications and Payments at NEVLICO's Administrative Office" in
the prospectus.) For special rules regarding transfers involving the Fixed
Account, see "The Fixed Account" in the supplement dated May 1, 1994 and in
the supplement dated February 1, 1989. Your Policy's cash value may be
distributed among no more than ten accounts (including the Fixed Account) at
any one time.
You may request a sub-account transfer or reallocation of future premiums by
written request (which may be telecopied) to NEVLICO's Administrative Office
or by telephoning The New England. To request a transfer or reallocation by
telephone, you should contact your registered representative or contact The
New England at 1-800-200-2214. Requests for transfers (up to NEVLICO's current
limit per policy year) or reallocations by telephone will be automatically
permitted. NEVLICO and The New England will use reasonable procedures such as
requiring certain identifying information from the caller, tape recording the
telephone instructions, and providing written confirmation of the transaction,
in order to confirm that instructions communicated by telephone are genuine.
Any telephone instructions reasonably believed by The New England and NEVLICO
to be genuine will be your responsibility, including losses arising from any
errors in the communication of instructions. As a result of this policy, you
will bear the risk of loss. If NEVLICO and The New England do not employ
reasonable procedures to confirm that instructions communicated by telephone
are genuine, they may be liable for any losses due to unauthorized or
fraudulent instructions.
For Policies issued in New York, transfers may be made by written request
only. The New York Insurance Department does not currently allow transfer
requests to be made by telephone.
PAYMENT OF PROCEEDS
NEVLICO will ordinarily pay any net cash value, loan value or death benefit
proceeds from the sub-accounts within seven days after receipt at the
Administrative Office of a request, or proof of death of the insured, in a
form satisfactory to NEVLICO. (See "Receipt of Communications and Payments at
NEVLICO's Administrative Office" in the prospectus.) However, NEVLICO may
delay payment or transfers from the sub-accounts: (i) if the New York Stock
Exchange is closed for other than weekends or holidays, or if trading on the
New York Stock Exchange is restricted, (ii) if the SEC determines that a state
of emergency exists that makes payments or sub-account transfers impractical,
or (iii) at any other time when the Eligible Funds or the Variable Account
have the legal right to suspend payment. NEVLICO may withhold payment of
surrender or loan proceeds to the extent that those proceeds are derived from
a Policy Owner's check, or from a Master Service Account premium transaction,
which has not yet cleared. In those cases, NEVLICO will process the surrender
or loan to the extent of policy values for which the Policy Owner has made
full payment. The balance of the surrender or loan proceeds will be paid when
the Policy Owner's check, or the Master Service Account premium transaction,
has cleared. NEVLICO may also delay payment if it considers whether to contest
the Policy. NEVLICO will pay interest on the death benefit proceeds from the
date they become payable to the date they are paid in one sum or, if a payment
option was selected, to the effective date of the option. (See "Payment
Options" in the prospectus.)
Death benefit proceeds may be paid pursuant to NEVLICO's Access Plus
program. If the Access Plus program is elected, an Access Plus account will be
established at State Street Bank & Trust Company at the time that death
benefit proceeds are payable. The Access Plus account provides convenient
access to proceeds, which are maintained in NEVLICO's general account, through
checkbook privileges with State Street. A beneficiary may elect to have death
benefit proceeds paid through the Access Plus program at any time prior to the
payment of death benefit proceeds.
Payments of net cash value, or of any loan value available, under a fixed-
benefit lapse option or from cash value in the Fixed Account will normally be
paid promptly. However, NEVLICO has the right to delay such payments for up to
six months from the date of the request. NEVLICO will pay interest in
accordance with state insurance law requirements on payments that are delayed.
6
<PAGE>
TAX CONSIDERATIONS
POLICY PROCEEDS
The following discussion of Federal income tax issues relating to the
Policies is general in nature and is not intended as tax advice. It describes
what NEVLICO believes is the Federal income tax treatment of the Policies in
the most commonly occurring circumstances and does not reflect the effect of
Federal income taxes in all situations. In addition, there is no guarantee
that the Federal income tax laws and regulations or interpretation of them
will not change. Therefore, NEVLICO recommends that you consult your own tax
advisor for more complete information and advice.
DEFINITION OF LIFE INSURANCE. Section 7702 of the Internal Revenue Code
defines a life insurance contract for Federal income tax purposes.
The Section 7702 definition can be met if a life insurance contract
satisfies either one of two tests set forth in that section. The manner in
which these tests should be applied to certain features of the Policy is not
directly addressed by Section 7702 or proposed regulations issued under that
section. The presence of these Policy features, the absence of final
regulations, and the lack of other pertinent interpretations of Section 7702,
thus create some uncertainty about the application of Section 7702 to the
Policy.
Nevertheless, NEVLICO believes that the Policy qualifies as a life insurance
contract for federal tax purposes. This means that:
. the death benefit should be fully excludable from the gross income of the
beneficiary under Section 101(a) (1) of the Code; and
. the Policy Owner should not be considered in constructive receipt of the
cash surrender value, including any increases, unless and until they are
distributed from the Policy.
Because of the absence of final regulations or any other pertinent
interpretations, it, however, is unclear whether substandard risk Policies or
Policies with term riders added will, in all cases, meet the statutory life
insurance contract definition. If a Policy were determined not to be a life
insurance contract for purposes of Section 7702, such Policy would not provide
most of the tax advantages normally provided by a life insurance contract.
NEVLICO thus reserves the right to make changes in the Policy if such
changes are deemed necessary to attempt to assure its qualification as a life
insurance contract for tax purposes.
TAX LAW EFFECTS ON CERTAIN PRE-DEATH DISTRIBUTIONS. Section 7702A of the
Code contains provisions affecting the tax treatment of any loan, assignment
or other pre-death distribution from a life insurance policy which is also a
"modified endowment contract" (defined below under "Modified Endowment
Contracts").
NON-MODIFIED ENDOWMENT CONTRACTS. For Policies not classified as modified
endowment contracts NEVLICO believes any policy loans received under such
Policies will be treated as indebtedness of the owner and will not be treated
as taxable income to you. This assumes that the Policy has not lapsed, been
surrendered or terminated. As a general rule, policy loan interest is not
deductible under current Federal income tax law.
You may be subject to Federal income tax upon surrender of your Policy if
the net cash surrender value of the Policy is greater than the investment in
the Policy less prior distributions from the Policy that were not taxed. If a
Policy has a policy loan and is surrendered or lapses, the policy loan is
treated as a distribution and would be taxable if there is a gain in the
Policy. In that case, the gain in the Policy would be taxable even if the
Policy has no net cash surrender value. If you incur a loss upon the surrender
it is not likely to be deductible for Federal income tax purposes.
Generally, a partial surrender of the Policy will not be taxable to you
unless it is greater than the investment in the Policy less the untaxed
portions of any prior distributions. The Internal Revenue Code does provide,
however, that in certain situations in the first 15 years of the Policy
partial surrenders may be taxable, in whole or in part, if the net cash
surrender value is greater than the total investment in the Policy less the
previous untaxed distributions. This may be the case even if the amount of the
partial surrender is less than the investment in the Policy.
MODIFIED ENDOWMENT CONTRACT. In general, a modified endowment contract is a
life insurance contract issued or materially changed on or after June 21,
1988, which fails to satisfy a "7-pay test". A life insurance policy will fail
to satisfy the 7-pay test if the cumulative amount paid under the policy at
any time during the first seven policy years exceeds the sum of the net level
7
<PAGE>
premiums that would have been paid on or before such time had the policy
provided for paid up future benefits after the payment of seven level annual
premiums. Riders to the policy are considered part of the policy for purposes
of applying the 7-pay test. Any policy received in exchange for a modified
endowment contract will also be a modified endowment contract.
1. ZENITH LIFE POLICIES
Normally, payment of the Policy's premiums will not cause it to be a
modified endowment contract. If, however, the Policy's face amount is
reduced in the first seven policy years, either as a result of a partial
surrender or because the Policy Owner allows the Policy to lapse to Paid-up
Insurance, the 7-pay test may be applied as if the Policy had originally
been issued at the reduced face amount. In that event, the Policy could
fail the 7-pay test and be classified as a modified endowment contract.
If a "material change" in the benefits or other Policy terms occurs under
a Policy which has satisfied the 7-pay test, the Policy will be treated as
a new Policy entered into on the day on which the material change occurred.
The Policy will be retested under the 7-pay test, after making certain
adjustments to reflect the Policy's existing cash value. For this purpose,
only the addition of a rider to the Policy will constitute a material
change requiring a retesting under the 7-pay test. A Policy subject to
retesting in this manner could fail the 7-pay test.
It is important to be aware that the addition of a rider to any Policy,
even a Policy issued before June 21, 1988, could be a material change which
requires the Policy to be tested under the 7-pay test.
Regardless of when it was issued, if a Policy described in the Zenith
Life prospectus is exchanged on or after June 21, 1988 for another life
insurance policy, the new insurance policy should be reviewed to determine
how the rules regarding modified endowment contracts may apply to the new
policy.
2. ZENITH LIFE ONE POLICIES
ALL POLICIES DESCRIBED IN THE ZENITH LIFE ONE PROSPECTUS WHICH WERE
ENTERED INTO ON OR AFTER JUNE 21, 1988 ARE CONSIDERED MODIFIED ENDOWMENT
CONTRACTS AND ARE SUBJECT TO THE TAX TREATMENT OF DISTRIBUTIONS DISCUSSED
BELOW UNDER "DISTRIBUTIONS UNDER MODIFIED ENDOWMENT CONTRACTS". IN
ADDITION, ANY INSURANCE POLICY RECEIVED IN EXCHANGE FOR A MODIFIED
ENDOWMENT CONTRACT WILL ALSO BE A MODIFIED ENDOWMENT CONTRACT.
Regardless of when it was issued, if a Policy described in the Zenith
Life One prospectus is exchanged on or after June 21, 1988 for another life
insurance policy, the new insurance policy should be reviewed to determine
how the rules regarding modified endowment contracts may apply to the new
policy.
DISTRIBUTIONS UNDER MODIFIED ENDOWMENT CONTRACTS. If a Policy is a
modified endowment contract, then the following rules will apply to
distributions under such contract:
(a) Distributions will be includible in your gross income to the
extent the cash value of the Policy exceeds your investment in the
Policy (i.e. will be treated as income first.)
(b) Loans are considered distributions even if the amount borrowed is
retained by NEVLICO as a premium. Your investment in the Policy will be
increased by the amount of any prior loan that was included in your
gross income.
(c) A policy assignment is treated as a distribution. For example, in
a split dollar insurance plan involving a collateral assignment of the
Policy, the collateral assignment is a distribution which will subject
any gain in the Policy to taxation.
(d) A partial surrender to pay premiums is not a transaction
specifically addressed and may or may not be treated as a taxable
distribution.
(e) For purposes of determining the amount of the distribution which
is includible in gross income, all modified endowment contracts issued
by NEVLICO or its affiliates to the same Policy Owner during any 12
month period must be treated as one modified endowment contract.
Any taxable distribution will be subject to an additional tax equal to
10% of the taxable amount of the distribution unless the distribution is:
(a) made on or after the date when you attain age 59 1/2;
8
<PAGE>
(b) is attributable to your becoming disabled; or
(c) is part of a series of substantially equal periodic payments made
no less frequently than annually for your life (or life expectancy).
If a Policy becomes a modified endowment contract, distributions made during
the policy year in which it becomes a modified endowment contract,
distributions in any subsequent policy year and distributions within two years
before the Policy becomes a modified endowment contract will be subject to the
tax treatment described above. This means that a distribution from a Policy
that is not a modified endowment contract could later become taxable as a
distribution from a modified endowment contract. In addition, regulations or
other interpretations may be issued which will apply similar tax treatment to
other distributions made in anticipation of a Policy becoming a modified
endowment contract.
OTHER POLICY OWNER TAX MATTERS. Federal and state estate, inheritance and
other tax consequences of ownership or receipt of proceeds under the Policy
depend upon the individual circumstances of each Policy Owner or beneficiary.
Section 817(h) of the Code requires the investments of the Variable Account
to be "adequately diversified" in accordance with Treasury Regulations for the
Policy to qualify as a life insurance contract under Section 7702 of the Code.
Failure to comply with the diversification requirements may result in not
treating the Policy as life insurance. If the Policy does not qualify as life
insurance, you may be subjected to immediate taxation on the incremental
increases in cash value of the Policy. Regulations specifying the
diversification requirements have been issued by the Department of Treasury,
and NEVLICO believes it complies fully with such requirements.
In connection with the issuance of the diversification regulations, the
Treasury Department stated that it anticipates the issuance of regulations or
rulings prescribing the circumstances in which an owner's control of the
investments of a separate account may cause a Policy Owner, rather than the
insurance company, to be treated as the owner of the assets in the separate
account. To date, no such regulations or guidance has been issued. If a Policy
Owner is considered the owner of the assets of the Separate Account, income
and gains from the Account would be included in the Owner's gross income.
The ownership rights under the Policy are similar to, but different in
certain respects from, those described by the Internal Revenue Service in
rulings in which it determined that the owners were not owners of separate
account assets. For example, a Policy Owner has additional flexibility in
allocating payments and cash values. These differences could result in the
owner being treated as the owner of a pro rata share of the assets of the
Separate Account. In addition, NEVLICO does not know what standards will be
set forth in the regulations or rulings which the Treasury has stated it
expects to be issued. NEVLICO therefore reserves the right to modify the
Policy as necessary to attempt to prevent the Policy Owner from being
considered the owner of the assets of the Separate Account.
The Policies may be used in various arrangements, including nonqualified
deferred compensation or salary continuance plans, split dollar insurance
plans, executive bonus plans, retiree medical benefit plans and others. The
tax consequences of such plans may vary depending on the particular facts and
circumstances of each individual arrangement. Therefore, if you are
contemplating the use of the Policies in any arrangement the value of which
depends in part on its tax consequences, you should be sure to consult a
qualified tax advisor regarding the tax attributes of the particular
arrangement.
CHARGE FOR NEVLICO'S INCOME TAXES
Under current Federal income tax law no tax is imposed on NEVLICO as a
result of the operations of the Variable Account. Thus, no charge is being
made currently to the Variable Account for company Federal income taxes.
NEVLICO reserves its right to charge the Variable Account for company Federal
income taxes in the future.
Under current laws NEVLICO may incur state and local taxes (in addition to
premium taxes) in several states. At present these taxes are not significant
and, accordingly, NEVLICO is not currently making a charge for them. If they
increase, however, charges for such taxes attributable to the Variable Account
may be made.
9
<PAGE>
MANAGEMENT
The directors and executive officers of NEVLICO and their principal business
experience during the past five years are:
DIRECTORS OF NEVLICO
<TABLE>
<CAPTION>
PRINCIPAL BUSINESS EXPERIENCE DURING
NAME THE PAST FIVE YEARS
- ---- ------------------------------------
<S> <C>
Edward C. Hall Executive Vice President -- Client Services of The New England since
1988; Vice President -- Administration of NEVLICO
Kernan F. King Director, Executive Vice President and Chief Marketing Officer of The
New England since 1992; formerly, Director, Executive Vice
President -- Administration and General Counsel, 1990 to 1992, of
The New England
Robert E. Schneider Director, Executive Vice President and Chief Financial Officer of The
New England since 1993; formerly, Executive Vice President and Chief
Financial Officer, 1990 to 1993, Senior Vice President, 1985 to
1990, of The New England
Robert A. Shafto Chairman, President and Chief Executive Officer since 1993; formerly,
President and Chief Executive Officer, 1992 to 1993, President and
Chief Operating Officer, 1990 to 1992, of The New England; Chairman,
President and Chief Executive Officer of NEVLICO
Daniel J. Toran Executive Vice President of The New England since 1991; formerly,
Senior Vice President -- Agencies 1986 to 1991, of The New England
H. James Wilson Executive Vice President and General Counsel of The New England since
1993; formerly, Senior Vice President and General Counsel, 1992 to
1993, Senior Vice President and Associate General Counsel, 1990 to
1992, of The New England; General Counsel and Secretary of NEVLICO.
Frederick K. Zimmermann Executive Vice President and Chief Investment Officer of The New
England since 1993, formerly, Senior Vice President -- Investments,
1989 to 1993, of The New England; Vice President -- Investments of NEVLICO
EXECUTIVE OFFICERS OF NEVLICO
OTHER THAN DIRECTORS
<CAPTION>
PRINCIPAL BUSINESS EXPERIENCE DURING
NAME THE PAST FIVE YEARS
- ---- ------------------------------------
<S> <C>
Rodney J. Chandler Second Vice President and Actuary of The New England since 1990;
Chief Actuary of NEVLICO
Chester R. Frost Senior Vice President of The New England since 1984; Vice
President -- Controller of NEVLICO
John F. Guthrie Vice President of The New England since 1983; Vice President --
Portfolio Strategy of NEVLICO
John G. Small Senior Vice President of The New England since 1990; Vice President
and Chief Underwriter of NEVLICO
Phillip G. Sullivan Second Vice President and Medical Director of The New England since
1974; Vice President and Medical Director of NEVLICO
Newton H. Thompson Second Vice President and Treasurer of The New England since 1993;
formerly, Second Vice President and Assistant Treasurer, 1991 to
1992, and Assistant Vice President and Assistant Treasurer, 1989 to
1991, of The New England; Vice President and Treasurer of NEVLICO
H. James Wilson See Directors above
Frederick K. Zimmermann See Directors above
</TABLE>
The principal business address for each of the directors and executive
officers is the same as NEVLICO's.
LEGAL MATTERS
Legal matters in connection with the Policies described in this prospectus
have been passed on by H. James Wilson, General Counsel of NEVLICO.
Sutherland, Asbill & Brennan, Washington, D.C. has provided advice on certain
matters relating to the Federal securities laws.
FINANCIAL STATEMENTS
The financial statements of New England Variable Life Insurance Company and
of New England Variable Life Separate Account have been audited by Coopers &
Lybrand, independent auditors, as stated in their opinions appearing herein
and have been so included in reliance upon their authority as experts in
accounting and auditing.
10
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT
OF
NEW ENGLAND VARIABLE LIFE INSURANCE COMPANY
REPORT OF INDEPENDENT ACCOUNTANTS
To the Policy Owners and Board of Directors of New England Variable Life
Insurance Company:
We have audited the accompanying statement of assets and liabilities of New
England Variable Life Separate Account (comprised of Capital Growth Sub-
Account, Bond Income Sub-Account, Money Market Sub-Account, Stock Index Sub-
Account, Managed Sub-Account, Avanti Growth Sub-Account, Value Growth Sub-
Account, Small Cap Sub-Account, Equity-Income Sub-Account, Overseas Sub-
Account, High Income Sub-Account, and Asset Manager Sub-Account) of New
England Variable Life Insurance Company as of December 31, 1994, and the
related statements of operations and changes in net assets for each of the
periods indicated therein. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of investments held by the custodian as of
December 31, 1994. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the respective aforementioned
sub-accounts comprising New England Variable Life Separate Account of New
England Variable Life Insurance Company as of December 31, 1994, and the
results of their operations and changes in their net assets for each of the
periods indicated therein, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
February 3, 1995
11
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT
OF
NEW ENGLAND VARIABLE LIFE INSURANCE COMPANY
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1994
<TABLE>
<CAPTION>
NEW ENGLAND ZENITH FUND
------------------------------------------------------------------------------
CAPITAL BOND MONEY STOCK AVANTI
GROWTH INCOME MARKET INDEX MANAGED GROWTH
SUB- SUB- SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
------------ ----------- ----------- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investments in New England Zenith Fund and
Variable Insurance Products Fund, and
Variable Insurance Products Fund II at
market value (Note 2).................... $304,826,810 $20,250,408 $18,328,233 $11,767,226 $16,974,440 $8,143,351
<CAPTION>
SUB-ACCOUNT SHARES COST
- ----------------- ------------------------
<S> <C> <C> <C> <C> <C> <C>
Capital Growth... 976,070 $ 294,934,737
Bond Income...... 211,980 22,279,301
Money Market..... 183,282 18,328,233
Stock Index...... 156,209 13,412,970
Managed.......... 130,272 16,271,198
Avanti Growth.... 72,212 7,937,671
Value Growth..... 47,081 5,131,286
Small Cap........ 2,276 215,214
Equity-Income.... 1,503,462 22,928,486
Overseas......... 2,206,564 34,315,959
High Income...... 3,379 36,150
Asset Manager.... 16,410 227,797
Amount due and accrued from policy-related
transactions............................. 184,202 6,345 1,007,405 3,223 (4,968) 28,694
Dividends receivable...................... -- -- 82,924 -- -- --
------------ ----------- ----------- ----------- ----------- ----------
Total Assets............................ 305,011,012 20,256,753 19,418,562 11,770,449 16,969,472 8,172,045
LIABILITIES
Due New England Variable Life Insurance
Company.................................. 55,516,275 3,506,622 2,537,819 2,091,485 2,209,894 1,760,834
------------ ----------- ----------- ----------- ----------- ----------
Total liabilities....................... 55,516,275 3,506,622 2,537,819 2,091,485 2,209,894 1,760,834
------------ ----------- ----------- ----------- ----------- ----------
NET ASSETS FOR VARIABLE LIFE INSURANCE
POLICIES................................. $249,494,737 $16,750,131 $16,880,743 $ 9,678,964 $14,759,578 $6,411,211
============ =========== =========== =========== =========== ==========
</TABLE>
<TABLE>
<CAPTION>
VARIABLE
INSURANCE
VARIABLE INSURANCE PRODUCTS
NEW ENGLAND ZENITH FUND PRODUCTS FUND FUND II
--------------------- ---------------------------------- --------- ------------
VALUE SMALL EQUITY- HIGH ASSET
GROWTH CAP INCOME OVERSEAS INCOME MANAGER
SUB- SUB- SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT TOTAL
---------- --------- ----------- ----------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Investments in New England Zenith Fund and
Variable Insurance Products Fund, and
Variable Insurance Products Fund II at
market value (Note 2).................... $5,133,204 $219,876 $23,078,145 $34,576,854 $36,363 $226,294 $443,561,204
<CAPTION>
SUB-ACCOUNT
- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Capital Growth...
Bond Income......
Money Market.....
Stock Index......
Managed..........
Avanti Growth....
Value Growth.....
Small Cap........
Equity-Income....
Overseas.........
High Income......
Asset Manager....
Amount due and accrued from policy-related
transactions............................. 12,591 16,120 72,148 65,247 -- 5,412 1,396,419
Dividends receivable...................... -- -- -- -- -- -- 82,924
---------- -------- ----------- ----------- ------- -------- ------------
Total Assets............................ 5,145,795 235,996 23,150,293 34,642,101 36,363 231,706 445,040,547
LIABILITIES
Due New England Variable Life Insurance
Company.................................. 1,052,814 45,166 4,018,126 6,773,269 5,941 31,012 79,549,257
---------- -------- ----------- ----------- ------- -------- ------------
Total liabilities....................... 1,052,814 45,166 4,018,126 6,773,269 5,941 31,012 79,549,257
---------- -------- ----------- ----------- ------- -------- ------------
NET ASSETS FOR VARIABLE LIFE INSURANCE
POLICIES................................. $4,092,981 $190,830 $19,132,167 $27,868,832 $30,422 $200,694 $365,491,290
========== ======== =========== =========== ======= ======== ============
</TABLE>
See Notes to Financial Statements
12
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT
OF
NEW ENGLAND VARIABLE LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
NEW ENGLAND ZENITH FUND
-----------------------------------------------------------------------------------------------------
CAPITAL BOND MONEY STOCK AVANTI VALUE SMALL
GROWTH INCOME MARKET INDEX MANAGED GROWTH GROWTH CAP
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT*
------------ ----------- ----------- ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Income
Dividends....... $ 13,519,083 $ 1,399,070 $691,932 $ 307,159 $ 678,949 $ 43,109 $ 89,817 $ 327
EXPENSE
Mortality and
expense risk
charge (Note
3)............. 1,637,278 107,252 93,830 59,230 86,049 31,737 18,214 28
------------ ----------- -------- ----------- ---------- -------- -------- ------
Net investment
income (loss).. 11,881,805 1,291,818 598,102 247,929 592,900 11,372 71,603 299
NET REALIZED AND
UNREALIZED GAIN
ON INVESTMENTS
Net unrealized
appreciation
(depreciation)
on investments:
Beginning of
period......... 46,100,393 41,284 -- (1,457,732) 1,602,795 143,154 67,310 --
End of period... 9,892,073 (2,028,893) -- (1,645,744) 703,242 205,680 1,918 4,662
------------ ----------- -------- ----------- ---------- -------- -------- ------
Net change in
unrealized
appreciation
(depreciation). (36,208,320) (2,070,177) -- (188,012) (899,553) 62,526 (65,392) 4,662
Net realized
gain (loss) on
investments.... 67,810 1,763 -- 6,200 37,994 542 776 --
------------ ----------- -------- ----------- ---------- -------- -------- ------
Net realized and
unrealized gain
(loss) on
investments.... (36,140,510) (2,068,414) -- (181,812) (861,559) 63,068 (64,616) 4,662
------------ ----------- -------- ----------- ---------- -------- -------- ------
NET INCREASE
(DECREASE) IN
NET ASSETS
RESULTING FROM
OPERATIONS..... $(24,258,705) $ (776,596) $598,102 $ 66,117 $ (268,659) $ 74,440 $ 6,987 $4,961
============ =========== ======== =========== ========== ======== ======== ======
<CAPTION>
VARIABLE
INSURANCE
VARIABLE INSURANCE PRODUCTS
PRODUCTS FUND FUND II
------------------------------------- ------------- -------------
EQUITY- HIGH ASSET
INCOME OVERSEAS INCOME MANAGER
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT** SUB-ACCOUNT** TOTAL
----------- ----------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Income
Dividends....... $670,101 $ 69,390 $ -- $ -- $ 17,468,937
EXPENSE
Mortality and
expense risk
charge (Note
3)............. 75,586 133,276 6 34 2,242,520
----------- ----------- ------------- ------------- -------------
Net investment
income (loss).. 594,515 (63,886) (6) (34) 15,226,417
NET REALIZED AND
UNREALIZED GAIN
ON INVESTMENTS
Net unrealized
appreciation
(depreciation)
on investments:
Beginning of
period......... 93,013 700,341 -- -- 47,290,558
End of period... 149,659 260,895 213 (1,503) 7,542,202
----------- ----------- ------------- ------------- -------------
Net change in
unrealized
appreciation
(depreciation). 56,646 (439,446) 213 (1,503) (39,748,356)
Net realized
gain (loss) on
investments.... (929) (471) -- -- 113,685
----------- ----------- ------------- ------------- -------------
Net realized and
unrealized gain
(loss) on
investments.... 55,717 (439,917) 213 (1,503) (39,634,671)
----------- ----------- ------------- ------------- -------------
NET INCREASE
(DECREASE) IN
NET ASSETS
RESULTING FROM
OPERATIONS..... $650,232 $(503,803) $207 $(1,537) $(24,408,254)
=========== =========== ============= ============= =============
</TABLE>
* For the period May 2, 1994 (Commencement of Operations) through December 31,
1994.
**For the period December 19, 1994 (Commencement of Operations) through
December 31, 1994.
See Notes to Financial Statements
13
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT
OF
NEW ENGLAND VARIABLE LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
NEW ENGLAND ZENITH FUND
---------------------------------------------------------------------------------------
CAPITAL MONEY STOCK AVANTI
GROWTH BOND INCOME MARKET INDEX MANAGED GROWTH VALUE GROWTH
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT* SUB-ACCOUNT*
----------- ----------- ----------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME
Dividends........................ $14,407,828 $1,721,493 $415,332 $ 286,517 $ 778,823 $ 31,181 $31,108
EXPENSE
Mortality and expense risk charge
(Note 3)........................ 1,317,363 89,763 74,167 40,270 73,721 5,506 3,166
----------- ---------- -------- ---------- ---------- -------- -------
Net investment income (loss)..... 13,090,465 1,631,730 341,165 246,247 705,102 25,675 27,942
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS
Net unrealized appreciation
(depreciation) on investments:
Beginning of period............. 26,130,492 (62,020) -- (1,863,474) 1,105,911 -- --
End of period................... 46,100,393 41,284 -- (1,457,732) 1,602,795 143,154 67,310
----------- ---------- -------- ---------- ---------- -------- -------
Net change in unrealized
appreciation.................... 19,969,901 103,304 -- 405,742 496,884 143,154 67,310
Net realized gain (loss) on
investments..................... 436,493 84,686 -- (4,995) 93,335 (88) 64
----------- ---------- -------- ---------- ---------- -------- -------
Net realized and unrealized gain
on investments.................. 20,406,394 187,990 -- 400,747 590,219 143,066 67,374
----------- ---------- -------- ---------- ---------- -------- -------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS....... $33,496,859 $1,819,720 $341,165 $ 646,994 $1,295,321 $168,741 $95,316
=========== ========== ======== ========== ========== ======== =======
<CAPTION>
VARIABLE INSURANCE
PRODUCTS FUND
-------------------------- -----------
EQUITY-INCOME OVERSEAS
SUB-ACCOUNT* SUB-ACCOUNT* TOTAL
------------- ------------ -----------
<S> <C> <C> <C>
INCOME
Dividends........................ $ 46,757 $ -- $17,719,039
EXPENSE
Mortality and expense risk charge
(Note 3)........................ 7,615 17,666 1,629,237
-------- -------- -----------
Net investment income (loss)..... 39,142 (17,666 ) 16,089,802
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS
Net unrealized appreciation
(depreciation) on investments:
Beginning of period............. -- -- 25,310,909
End of period................... 93,013 700,341 47,290,558
-------- -------- -----------
Net change in unrealized
appreciation.................... 93,013 700,341 21,979,649
Net realized gain (loss) on
investments..................... (59) 729 610,165
-------- -------- -----------
Net realized and unrealized gain
on investments.................. 92,954 701,070 22,589,814
-------- -------- -----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS....... $132,096 $683,404 $38,679,616
======== ======== ===========
</TABLE>
* For the period April 30, 1993 (Commencement of Operations) through December
31, 1993.
See Notes to Financial Statements
14
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT
OF
NEW ENGLAND VARIABLE LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1992
<TABLE>
<CAPTION>
--------------------------------------------------------------- -----------
CAPITAL BOND MONEY STOCK
GROWTH INCOME MARKET INDEX MANAGED
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT TOTAL
------------ ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
INCOME
Dividends............... $ 2,544,247 $1,038,401 $541,442 $2,971,910 $ 521,129 $ 7,617,129
EXPENSE
Mortality and expense
risk charge (Note 3)... 872,975 57,034 75,654 24,160 51,418 1,081,241
------------ ---------- -------- ---------- --------- -----------
Net investment income... 1,671,272 981,367 465,788 2,947,750 469,711 6,535,888
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Net unrealized
appreciation
(depreciation ) on
investments:
Beginning of period.... 36,250,872 132,914 -- 767,700 1,283,603 38,435,089
End of period.......... 26,130,492 (62,020) -- (1,863,474) 1,105,911 25,310,909
------------ ---------- -------- ---------- --------- -----------
Net change in unrealized
depreciation........... (10,120,380) (194,934) -- (2,631,174) (177,692) (13,124,180)
Net realized gain on
investments............ 3,522 45,768 -- 14,077 350,133 413,500
------------ ---------- -------- ---------- --------- -----------
Net realized and
unrealized gain (loss)
on investments......... (10,116,858) (149,166) -- (2,617,097) 172,441 (12,710,680)
------------ ---------- -------- ---------- --------- -----------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM OPERATIONS........ $ (8,445,586) $ 832,201 $465,788 $ 330,653 $ 642,152 $(6,174,792)
============ ========== ======== ========== ========= ===========
</TABLE>
See Notes to Financial Statements
15
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT
OF
NEW ENGLAND VARIABLE LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
NEW ENGLAND ZENITH FUND
-----------------------------------------------------------------------------------------------------
CAPITAL BOND MONEY STOCK AVANTI VALUE SMALL
GROWTH INCOME MARKET INDEX MANAGED GROWTH GROWTH CAP
SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT*
------------ ----------- ------------ ----------- ----------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FROM INVESTMENT
ACTIVITIES
Net investment
income (loss)... $ 11,881,805 $ 1,291,818 $ 598,102 $ 247,929 $ 592,900 $ 11,372 $ 71,603 $ 299
Net realized and
unrealized gain
(loss) on
investments..... (36,140,510) (2,068,414) -- (181,812) (861,559) 63,068 (64,616) 4,662
------------ ----------- ------------ ----------- ----------- ----------- ----------- --------
Increase
(decrease) in
net assets
derived from
investment
activities..... (24,258,705) (776,596) 598,102 66,117 (268,659) 74,440 6,987 4,961
FROM POLICY-RELATED
TRANSACTIONS
Net premiums
transferred from
New England
Variable Life
Insurance
Company......... 101,802,783 6,362,705 39,544,492 3,600,140 4,112,835 3,173,029 1,762,484 4,323
Net transfers
(to) from other
sub-accounts.... (1,234,289) (822,617) (29,858,294) 718,688 (186,357) 2,527,486 2,012,595 226,677
Net transfers to
New England
Variable Life
Insurance
Company......... (56,761,722) (4,458,223) (6,161,941) (2,075,140) (3,102,454) (2,027,427) (1,190,128) (45,131)
------------ ----------- ------------ ----------- ----------- ----------- ----------- --------
Increase in net
assets derived
from policy-
related
transactions.... 43,806,772 1,081,865 3,524,257 2,243,688 824,024 3,673,088 2,584,951 185,869
------------ ----------- ------------ ----------- ----------- ----------- ----------- --------
Net increase in
net assets...... 19,548,067 305,269 4,122,359 2,309,805 555,365 3,747,528 2,591,938 190,830
NET ASSETS, AT
BEGINNING OF THE
PERIOD.......... 229,946,670 16,444,862 12,758,384 7,369,159 14,204,213 2,663,683 1,501,043 --
------------ ----------- ------------ ----------- ----------- ----------- ----------- --------
NET ASSETS, AT
END OF THE
PERIOD.......... $249,494,737 $16,750,131 $ 16,880,743 $ 9,678,964 $14,759,578 $ 6,411,211 $ 4,092,981 $190,830
============ =========== ============ =========== =========== =========== =========== ========
<CAPTION>
VARIABLE
INSURANCE
VARIABLE INSURANCE PRODUCTS
PRODUCTS FUND FUND II
----------------------------------- ---------- -------------
EQUITY- HIGH ASSET
INCOME OVERSEAS INCOME MANAGER
SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT** ACCOUNT** TOTAL
------------ ------------ --------- ---------- -------------
<S> <C> <C> <C> <C> <C>
FROM INVESTMENT
ACTIVITIES
Net investment
income (loss)... $ 594,515 $ (63,886) $ (6) $ (34) $ 15,226,417
Net realized and
unrealized gain
(loss) on
investments..... 55,717 (439,917) 213 (1,503) (39,634,671)
------------ ------------ --------- ---------- -------------
Increase
(decrease) in
net assets
derived from
investment
activities..... 650,232 (503,803) 207 (1,537) (24,408,254)
FROM POLICY-RELATED
TRANSACTIONS
Net premiums
transferred from
New England
Variable Life
Insurance
Company......... 9,237,234 11,268,285 102 8,495 180,876,907
Net transfers
(to) from other
sub-accounts.... 9,868,299 16,487,055 36,048 224,709 --
Net transfers to
New England
Variable Life
Insurance
Company......... (4,905,512) (8,836,370) (5,935) (30,973) (89,600,956)
------------ ------------ --------- ---------- -------------
Increase in net
assets derived
from policy-
related
transactions.... 14,200,021 18,918,970 30,215 202,231 91,275,951
------------ ------------ --------- ---------- -------------
Net increase in
net assets...... 14,850,253 18,415,167 30,422 200,694 66,867,697
NET ASSETS, AT
BEGINNING OF THE
PERIOD.......... 4,281,914 9,453,665 -- -- 298,623,593
------------ ------------ --------- ---------- -------------
NET ASSETS, AT
END OF THE
PERIOD.......... $19,132,167 $27,868,832 $30,422 $200,694 $365,491,290
============ ============ ========= ========== =============
</TABLE>
*For the period May 2, 1994 (Commencement of Operations) through December 31,
1994.
**For the period December 19, 1994 (Commencement of Operations) through
December 31, 1994.
See Notes to Financial Statements
16
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT
OF
NEW ENGLAND VARIABLE LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
NEW ENGLAND ZENITH FUND
-------------------------------------------------------------------------------------------
CAPITAL BOND MONEY STOCK AVANTI VALUE
GROWTH INCOME MARKET INDEX MANAGED GROWTH GROWTH
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT* SUB-ACCOUNT*
------------ ----------- ----------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
FROM INVESTMENT
ACTIVITIES
Net investment
income (loss).. $ 13,090,465 $ 1,631,730 $ 341,165 $ 246,247 $ 705,102 $ 25,675 $ 27,942
Net realized and
unrealized gain
on investments. 20,406,394 187,990 -- 400,747 590,219 143,066 67,374
------------ ----------- ----------- ---------- ----------- ---------- ----------
Increase in net
assets derived
from investment
activities..... 33,496,859 1,819,720 341,165 646,994 1,295,321 168,741 95,316
FROM POLICY-
RELATED
TRANSACTIONS
Net premiums
transferred
from New
England
Variable Life
Insurance
Company........ 88,880,791 5,429,522 27,439,024 2,696,124 3,325,220 579,106 252,321
Net transfers
(to) from other
sub-accounts... (185,104) 1,155,530 (22,054,415) 1,088,665 1,967,320 2,787,043 1,529,391
Net transfers to
New England
Variable Life
Insurance
Company........ (41,091,866) (2,588,466) (5,031,875) (1,483,033) (1,785,088) (871,207) (375,985)
------------ ----------- ----------- ---------- ----------- ---------- ----------
Increase in net
assets derived
from policy-
related
transactions... 47,603,821 3,996,586 352,734 2,301,756 3,507,452 2,494,942 1,405,727
------------ ----------- ----------- ---------- ----------- ---------- ----------
Net increase in
net assets..... 81,100,680 5,816,306 693,899 2,948,750 4,802,773 2,663,683 1,501,043
NET ASSETS, AT
BEGINNING OF
THE PERIOD..... 148,845,990 10,628,556 12,064,485 4,420,409 9,401,440 -- --
------------ ----------- ----------- ---------- ----------- ---------- ----------
NET ASSETS, AT
END OF THE
PERIOD......... $229,946,670 $16,444,862 $12,758,384 $7,369,159 $14,204,213 $2,663,683 $1,501,043
============ =========== =========== ========== =========== ========== ==========
<CAPTION>
VARIABLE INSURANCE
PRODUCTS FUND
-------------------------- -------------
EQUITY-INCOME OVERSEAS
SUB-ACCOUNT* SUB-ACCOUNT* TOTAL
------------- ------------ -------------
<S> <C> <C> <C>
FROM INVESTMENT
ACTIVITIES
Net investment
income (loss).. $ 39,142 $ (17,666) $ 16,089,802
Net realized and
unrealized gain
on investments. 92,954 701,070 22,589,814
------------- ------------ -------------
Increase in net
assets derived
from investment
activities..... 132,096 683,404 38,679,616
FROM POLICY-
RELATED
TRANSACTIONS
Net premiums
transferred
from New
England
Variable Life
Insurance
Company........ 964,191 1,568,988 131,135,287
Net transfers
(to) from other
sub-accounts... 4,320,708 9,390,862 --
Net transfers to
New England
Variable Life
Insurance
Company........ (1,135,081) (2,189,589) (56,552,190)
------------- ------------ -------------
Increase in net
assets derived
from policy-
related
transactions... 4,149,818 8,770,261 74,583,097
------------- ------------ -------------
Net increase in
net assets..... 4,281,914 9,453,665 113,262,713
NET ASSETS, AT
BEGINNING OF
THE PERIOD..... -- -- 185,360,880
------------- ------------ -------------
NET ASSETS, AT
END OF THE
PERIOD......... $4,281,914 $9,453,665 $298,623,593
============= ============ =============
</TABLE>
* For the period April 30, 1993 (Commencement of Operations) through December
31, 1993.
See Notes to Financial Statements
17
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT
OF
NEW ENGLAND VARIABLE LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1992
<TABLE>
<CAPTION>
----------------------------------------------------------------- ------------
CAPITAL BOND MONEY STOCK
GROWTH INCOME MARKET INDEX MANAGED
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT TOTAL
------------ ----------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
FROM INVESTMENT
ACTIVITIES
Net investment income.. $ 1,671,272 $ 981,367 $ 465,788 $ 2,947,750 $ 469,711 $ 6,535,888
Net realized and
unrealized gain (loss)
on investments........ (10,116,858) (149,166) -- (2,617,097) 172,441 (12,710,680)
------------ ----------- ------------ ----------- ----------- ------------
Increase (decrease) in
net assets derived
from investment
activities........... (8,445,586) 832,201 465,788 330,653 642,152 (6,174,792)
FROM POLICY-RELATED
TRANSACTIONS
Net premiums
transferred from New
England Variable Life
Insurance Company..... 67,808,576 3,248,052 24,616,186 1,485,555 2,274,457 99,432,826
Net transfers (to) from
other sub-accounts.... 16,957,727 1,845,009 (19,527,266) 849,096 (124,566) --
Net transfers to New
England Variable Life
Insurance Company..... (50,969,349) (2,798,256) (4,457,696) (1,217,417) (1,765,986) (61,208,704)
------------ ----------- ------------ ----------- ----------- ------------
Increase in net assets
derived from policy-
related transactions.. 33,796,954 2,294,805 631,224 1,117,234 383,905 38,224,122
------------ ----------- ------------ ----------- ----------- ------------
Net increase in net
assets................ 25,351,368 3,127,006 1,097,012 1,447,887 1,026,057 32,049,330
NET ASSETS, AT
BEGINNING OF THE
PERIOD................ 123,494,622 7,501,550 10,967,473 2,972,522 8,375,383 153,311,550
------------ ----------- ------------ ----------- ----------- ------------
NET ASSETS, AT END OF
THE PERIOD............ $148,845,990 $10,628,556 $ 12,064,485 $ 4,420,409 $ 9,401,440 $185,360,880
============ =========== ============ =========== =========== ============
</TABLE>
See Notes to Financial Statements
18
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT
OF
NEW ENGLAND VARIABLE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
1. New England Variable Life Separate Account (the "Account") of New England
Variable Life Insurance Company ("NEVLICO"), was established by NEVLICO's
Board of Directors on January 31, 1983 in accordance with the regulations of
the Delaware Insurance Department. NEVLICO is a wholly-owned subsidiary of New
England Mutual Life Insurance Company ("The New England"). The Account is
registered as a unit investment trust under the Investment Company Act of
1940. The assets of the Account are owned by NEVLICO. However, that portion of
the Account assets equal to the reserves and other liabilities of the Account
may not be charged with liabilities that arise out of any other business
NEVLICO may conduct.
2. The Account has twelve investment sub-accounts each of which invests in the
shares of one portfolio of New England Zenith Fund ("Zenith Fund"), the
Variable Insurance Products Fund or the Variable Insurance Products Fund II.
The portfolios of the Zenith Fund, the Variable Insurance Products Fund and
Variable Insurance Products Fund II in which the sub-accounts invest are
referred to herein as the "Eligible Funds." The Zenith Fund, the Variable
Insurance Products Fund and Variable Insurance Products Fund II are
diversified, open-end management investment companies. The Account purchases
or redeems shares of the twelve Eligible Funds based on the amount of net
premiums invested in the Account, transfers among the sub-accounts, policy
loans, surrender payments, and death benefit payments. The values of the
shares of the Eligible Funds are determined as of the close of the New York
Stock Exchange (normally 4:00 p.m. Boston time) on each day the Exchange is
open for trading. Realized gains and losses on the sale of the Eligible Funds'
shares are computed on the basis of identified cost on the trade date. Income
from dividends is recorded on the ex-dividend date.
3. Certain deductions are made from each premium payment paid to NEVLICO to
arrive at a net premium that is transferred to the Account, and certain
deductions are made from the variable life insurance policies' cash value.
These deductions include sales load, administrative expenses, a risk charge,
premium taxes and the cost of providing insurance protection. Charges for
investment advisory fees and other expenses are deducted from the assets of
the Eligible Funds.
NEVLICO charges the Account for mortality and expense risks NEVLICO assumes.
Currently, the charges are made daily at an effective annual rate of .35% of
the Account assets attributable to fixed premium variable life policies, .45%
of the Account assets attributable to single premium variable life policies,
.60% of the Account assets attributable to variable ordinary life policies and
limited payment variable life policies, and .90% of the Account assets
attributable to variable survivorship life policies.
4. For federal income tax purposes the Account's operations are included with
those of NEVLICO. NEVLICO intends to make appropriate charges against the
Account in the future if and when tax liabilities arise.
5. The Back Bay Advisors Bond Income, Back Bay Advisors Money Market and Back
Bay Advisors Managed Series of the Zenith Fund receive investment advice from
Back Bay Advisors, L.P. ("Back Bay Advisors"), an indirect subsidiary of The
New England. Capital Growth Management Limited Partnership ("CGM") serves as
investment adviser to the Capital Growth Series. Loomis, Sayles serves as
investment adviser to the Loomis Sayles Avanti Growth Series and the Loomis
Sayles Small Cap Series, and Westpeak Investment Advisers, L.P. ("Westpeak")
serves as investment adviser to the Westpeak Stock Index Series and the
Westpeak Value Growth Series. Back Bay Advisors served as investment adviser
to the Westpeak Stock Index Series until August 2, 1993, when Westpeak became
the investment adviser pursuant to an advisory agreement that was approved by
shareholders of the Westpeak Stock Index Series on July 14, 1993. Loomis,
Sayles, Westpeak, and CGM are indirect subsidiaries of The New England. The
Equity-Income, Overseas, and High Income Portfolios of the Variable Insurance
Products Fund and the Asset Manager Portfolio of the Variable Insurance
Products Fund II receive investment advice from Fidelity Management & Research
Company.
19
<PAGE>
6. The following table shows the aggregate cost of shares purchased and
proceeds from sales of each sub-account as of December 31, 1994:
<TABLE>
<CAPTION>
PURCHASES SALES
------------ ------------
<S> <C> <C>
Capital Growth..................................... $164,839,394 $104,764,194
Bond Income........................................ 12,808,505 9,812,380
Money Market....................................... 55,266,374 50,824,342
Stock Index........................................ 6,625,186 3,854,139
Managed............................................ 8,429,317 6,603,077
Avanti Growth...................................... 7,196,134 2,478,839
Value Growth....................................... 4,869,047 1,506,335
Small Cap.......................................... 231,338 5
Fidelity Equity-Income............................. 24,975,998 7,189,332
Fidelity Overseas.................................. 32,894,034 9,110,672
Fidelity High Income............................... 36,150 --
Fidelity Asset Manager............................. 245,398 6,777
</TABLE>
7. The following tables show the net investment return of the sub-accounts for
each type of variable life insurance policy investing in the Account. The net
investment return reflects the appropriate mortality and expense risk charge
against sub-account assets for each type of variable life insurance policy
shown. These figures do not reflect charges deducted from premiums and cash
values of the policies. Such charges will affect the actual cash values and
benefits of the policies. Certain amounts in 1988, 1989, and 1990 have been
recalculated to conform with the current presentation.
FIXED PREMIUM ("ZENITH LIFE") POLICIES
<TABLE>
<CAPTION>
NET INVESTMENT RETURN OF THE SUB-ACCOUNTS
-----------------------------------------------------------------------------------------
1/1/85- 1/1/86- 1/1/87- 1/1/88- 1/1/89 - 1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94-
SUB-ACCOUNT 12/31/85 12/31/86 12/31/87 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth.......... 67.51% 94.53% 52.17% -9.11% 30.30% -3.82% 53.45% -6.38% 14.57% -8.06%
Bond Income............. 18.34% 14.43% 1.91% 7.99% 11.91% 7.71% 17.55% 7.80% 12.22% -3.91%
Money Market............ 7.88% 6.43% 6.16% 7.14% 8.87% 7.81% 5.84% 3.43% 2.61% 3.65%
<CAPTION>
5/1/87- 1/1/88- 1/1/89 - 1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94-
SUB-ACCOUNT 12/31/87 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94
- ----------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Stock-Index............................... -12.40% 15.93% 29.70% -4.48% 29.98% 6.92% 9.34% 0.71%
Managed................................... -.89% 9.10% 18.67% 2.85% 19.75% 6.33% 10.26% -1.53%
<CAPTION>
4/30/93- 1/1/94-
SUB-ACCOUNT 12/31/93 12/31/94
- ----------- -------- --------
<S> <C> <C>
Avanti Growth................................................................................... 14.47% -1.70%
Value Growth.................................................................................... 13.97% -1.86%
<CAPTION>
1/1/93- 1/1/94-
SUB-ACCOUNT 12/31/93 12/31/94
- ----------- -------- --------
<S> <C> <C>
Fidelity Equity-Income.......................................................................... 17.88% 6.55%
Fidelity Overseas............................................................................... 36.87% 0.85%
<CAPTION>
5/2/94-
SUB-ACCOUNT 12/31/94
- ----------- --------
<S> <C>
Small Cap................................................................................................ -4.23%
<CAPTION>
1/1/94-
SUB-ACCOUNT 12/31/94
- ----------- --------
<S> <C>
Fidelity High Income..................................................................................... -1.80%
Fidelity Asset Manager................................................................................... -6.76%
</TABLE>
20
<PAGE>
SINGLE PREMIUM ("ZENITH LIFE ONE") POLICIES
<TABLE>
<CAPTION>
NET INVESTMENT RETURN OF THE SUB-ACCOUNTS
-----------------------------------------------------------------------------------------
1/1/85- 1/1/86- 1/1/87- 1/1/88- 1/1/89- 1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94-
SUB-ACCOUNT 12/31/85 12/31/86 12/31/87 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth.......... 67.34% 94.33% 52.02% -9.20% 30.17% -3.91% 53.29% -6.47% 14.46% -8.16%
Bond Income............. 18.23% 14.32% 1.81% 7.88% 11.79% 7.60% 17.43% 7.69% 12.10% -4.01%
Money Market............ 7.78% 6.32% 6.05% 7.03% 8.77% 7.71% 5.74% 3.33% 2.51% 3.54%
<CAPTION>
5/1/87- 1/1/88- 1/1/89- 1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94-
SUB-ACCOUNT 12/31/87 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94
- ----------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Stock Index............................... -12.46% 15.82% 29.57% -4.58% 29.85% 6.81% 9.23% 0.60%
Managed................................... -.96% 8.99% 18.55% 2.75% 19.63% 6.22% 10.15% -1.63%
<CAPTION>
4/30/93- 1/1/94-
SUB-ACCOUNT 12/31/93 12/31/94
- ----------- -------- --------
<S> <C> <C>
Avanti Growth................................................................................... 14.39% -1.80%
Value Growth.................................................................................... 13.90% -1.96%
<CAPTION>
1/1/93- 1/1/94-
SUB-ACCOUNT 12/31/93 12/31/94
- ----------- -------- --------
<S> <C> <C>
Fidelity Equity-Income.......................................................................... 17.76% 6.44%
Fidelity Overseas............................................................................... 36.74% 0.75%
<CAPTION>
5/2/94-
SUB-ACCOUNT 12/31/94
- ----------- --------
<S> <C>
Small Cap................................................................................................ -4.30%
<CAPTION>
1/1/94-
SUB-ACCOUNT 12/31/94
- ----------- --------
<S> <C>
Fidelity High Income..................................................................................... -1.90%
Fidelity Asset Manager................................................................................... -6.85%
</TABLE>
VARIABLE ORDINARY ("ZENITH LIFE PLUS" AND "ZENITH LIFE PLUS II") AND LIMITED
PAYMENT ("ZENITH LIFE EXECUTIVE 65") POLICIES
<TABLE>
<CAPTION>
NET INVESTMENT RETURN OF THE SUB-ACCOUNTS
-----------------------------------------------------------------------------------------
1/1/85- 1/1/86- 1/1/87- 1/1/88- 1/1/89- 1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94-
SUB-ACCOUNT 12/31/85 12/31/86 12/31/87 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth.......... 67.09% 94.04% 51.79% -9.36% 30.80% -4.64% 53.06% -6.61% 14.28% -8.30%
Bond Income............. 18.05% 14.15% 1.65% 7.63% 11.68% 7.48% 17.25% 7.53% 11.94% -4.16%
Money Market............ 7.61% 6.16% 5.89% 6.94% 8.58% 7.50% 5.58% 3.18% 2.36% 3.39%
<CAPTION>
5/1/87- 1/1/88- 1/1/89- 1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94-
SUB-ACCOUNT 12/31/87 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94
- ----------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Stock Index............................... -12.55% 14.67% 32.72% -6.33% 29.65% 6.65% 9.07% 0.45%
Managed................................... -1.06% 8.43% 19.83% 1.72% 19.45% 6.06% 9.99% -1.78%
<CAPTION>
4/30/93- 1/1/94-
SUB-ACCOUNT 12/31/93 12/31/94
- ----------- -------- --------
<S> <C> <C>
Avanti Growth................................................................................... 14.28% -1.94%
Value Growth.................................................................................... 13.78% -2.11%
<CAPTION>
1/1/93- 1/1/94-
SUB-ACCOUNT 12/31/93 12/31/94
- ----------- -------- --------
<S> <C> <C>
Fidelity Equity-Income.......................................................................... 17.59% 6.28%
Fidelity Overseas............................................................................... 36.53% 0.59%
<CAPTION>
5/2/94-
SUB-ACCOUNT 12/31/94
- ----------- --------
<S> <C>
Small Cap................................................................................................ -4.40%
<CAPTION>
1/1/94-
SUB-ACCOUNT 12/31/94
- ----------- --------
<S> <C>
Fidelity High Income..................................................................................... -2.05%
Fidelity Asset Manager................................................................................... -7.00%
</TABLE>
21
<PAGE>
VARIABLE ORDINARY ("ZENITH SURVIVORSHIP LIFE") POLICIES
<TABLE>
<CAPTION>
NET INVESTMENT RETURN OF THE SUB-ACCOUNTS
-----------------------------------------------------------------------------------------
1/1/85- 1/1/86- 1/1/87- 1/1/88- 1/1/89- 1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94-
SUB-ACCOUNT 12/31/85 12/31/86 12/31/87 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth.......... 66.59% 93.46% 51.34% -9.63% 30.41% -4.92% 52.61% -6.90% 13.94% -8.57%
Bond Income............. 17.70% 13.81% 1.35% 7.30% 11.34% 7.16% 16.90% 7.21% 11.60% -4.45%
Money Market............ 7.29% 5.85% 5.57% 6.62% 8.25% 7.18% 5.26% 2.87% 2.05% 3.08%
<CAPTION>
5/1/87- 1/1/88- 1/1/89- 1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94-
SUB-ACCOUNT 12/31/87 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94
- ----------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Stock Index............................... -12.73% 14.32% 32.33% -6.61% 29.27% 6.33% 8.74% 0.15%
Managed................................... -1.26% 8.10% 19.47% 1.42% 19.10% 5.74% 9.69% -2.07%
<CAPTION>
4/30/93- 1/1/94-
SUB-ACCOUNT 12/31/93 12/31/94
- ----------- -------- --------
<S> <C> <C>
Avanti Growth................................................................................... 14.05% -2.24%
Value Growth.................................................................................... 13.55% -2.40%
<CAPTION>
1/1/93- 1/1/94-
SUB-ACCOUNT 12/31/93 12/31/94
- ----------- -------- --------
<S> <C> <C>
Fidelity Equity-Income.......................................................................... 17.23% 5.96%
Fidelity Overseas............................................................................... 36.12% 0.29%
<CAPTION>
5/2/94-
SUB-ACCOUNT 12/31/94
- ----------- --------
<S> <C>
Small Cap................................................................................................ -4.59%
<CAPTION>
1/1/94-
SUB-ACCOUNT 12/31/94
- ----------- --------
<S> <C>
Fidelity High Income..................................................................................... -2.34%
Fidelity Asset Manager................................................................................... -7.28%
</TABLE>
The net investment return of a sub-account is calculated by taking the
difference between the sub-account's ending value and beginning value for the
period and dividing it by the beginning value for the period.
22
<PAGE>
NEW ENGLAND VARIABLE LIFE INSURANCE COMPANY
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholder of New England Variable Life
Insurance Company:
We have audited the accompanying balance sheets of New England Variable Life
Insurance Company (a wholly-owned subsidiary of New England Mutual Life
Insurance Company) as of December 31, 1994 and 1993, and the related
statements of operations, surplus, and cash flows for the years then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of New England Variable Life
Insurance Company as of December 31, 1994 and 1993, and the results of its
operations and its cash flows for the years then ended in conformity with
accounting practices prescribed or permitted by the Insurance Department of
the State of Delaware, which are considered generally accepted accounting
principles for wholly-owned stock life insurance subsidiaries of mutual life
insurance companies.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
February 24, 1995
23
<PAGE>
NEW ENGLAND VARIABLE LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY)
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1994 1993
---- ----
<S> <C> <C>
Bonds.............................................. $ 7,828,833 $ 7,987,043
Mortgage loan...................................... 2,221,942 2,230,000
Policy loans....................................... 43,967,343 30,673,718
Cash and short-term investments.................... 10,669,045 21,282,674
Accrued investment income.......................... 1,377,286 1,061,822
Premiums deferred and uncollected.................. 6,892,888 5,452,658
Due from separate account, net..................... 79,549,258 63,855,885
Due from New England Mutual Life Insurance Company. 1,889,855 475,007
Other assets....................................... 814,991 1,636,853
Separate account assets............................ 445,040,547 362,479,478
------------ ------------
Total assets................................... $600,251,988 $497,135,138
============ ============
LIABILITIES AND SURPLUS
Policy reserves.................................... $ 44,648,304 $ 26,905,146
Due New England Mutual Life Insurance Company...... 3,219,350 7,917,908
Federal income taxes............................... 4,611,653 1,644,852
Accrued expenses................................... 4,746,096 2,866,665
Other liabilities.................................. 1,120,620 735,987
Separate account liabilities....................... 445,040,547 362,479,478
------------ ------------
Total liabilities.............................. 503,386,570 402,550,036
Surplus:
Common stock (shares authorized: 50,000; issued
and outstanding:
20,000; par value $125)......................... 2,500,000 2,500,000
Paid-in capital in excess of par value........... 117,709,808 107,709,808
Unassigned surplus............................... (23,481,592) (15,831,154)
Asset valuation reserve........................ 137,202 206,448
------------ ------------
Total surplus.................................. 96,865,418 94,585,102
------------ ------------
Total liabilities and surplus.................. $600,251,988 $497,135,138
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
24
<PAGE>
NEW ENGLAND VARIABLE LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1994 1993
------------ ------------
<S> <C> <C>
Income:
Premiums......................................... $201,732,909 $146,137,792
Investment income................................ 3,093,024 2,724,046
------------ ------------
204,825,933 148,861,838
Expenses:
Death and other benefits......................... 23,345,664 18,207,816
Increase in policy reserves...................... 17,743,158 5,573,679
Commissions...................................... 37,220,361 29,849,384
Net transfers to separate account................ 87,853,704 58,823,455
General and administrative....................... 43,395,223 31,727,803
------------ ------------
209,558,110 144,182,137
------------ ------------
Income (loss) before provision for taxes........... (4,732,177) 4,679,701
Provision for income taxes......................... 2,968,375 5,066,507
------------ ------------
Net loss from operations before realized capital
losses............................................ (7,700,552) (386,806)
Net realized investment gains (losses) less capital
gains tax of $0 in 1994 and $4,916 in 1993........ 9 (5,780)
------------ ------------
Net loss........................................... $ (7,700,543) $ (392,586)
============ ============
STATEMENTS OF SURPLUS
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1994 1993
------------ ------------
<S> <C> <C>
Surplus, beginning of year......................... $ 94,585,102 $ 69,988,844
Net loss........................................... (7,700,543) (392,586)
Change in non-admitted assets...................... (19,141) (11,156)
Paid-in capital.................................... 10,000,000 25,000,000
------------ ------------
Surplus, end of year............................... $ 96,865,418 $ 94,585,102
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
25
<PAGE>
NEW ENGLAND VARIABLE LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1994 1993
------------- ------------
<S> <C> <C>
Cash flows from operating activities:
Insurance premiums and other considerations..... $ 199,670,506 $143,259,367
Investment income............................... 2,773,220 2,479,596
Benefits........................................ (23,510,882) (18,036,117)
Expenses and taxes.............................. (80,900,670) (62,011,687)
Net transfers to separate account............... (103,547,077) (72,721,602)
Net increase in policy loans.................... (13,293,625) (9,308,284)
Other disbursements, net........................ (1,972,032) (2,914,732)
------------- ------------
Net cash flows used in operating activities... (20,780,560) (19,253,459)
Cash flows from investing activities:
Proceeds of long-term investments sold, matured
or repaid (net of tax)......................... 166,942 576,687
Cost of long-term investments acquired.......... (11) (922)
------------- ------------
Net cash flows from investing activities...... 166,931 575,765
Cash flows from financing activities:
Paid-in capital................................. 10,000,000 25,000,000
------------- ------------
Net cash flows.................................... (10,613,629) 6,322,306
Cash and short-term investments, beginning of
year............................................. 21,282,674 14,960,368
------------- ------------
Cash and short-term investments, end of year...... $ 10,669,045 $ 21,282,674
============= ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
26
<PAGE>
NEW ENGLAND VARIABLE LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS
1. GENERAL:
New England Variable Life Insurance Company (the "Company") is a wholly-
owned stock life insurance subsidiary of New England Mutual Life Insurance
Company ("The New England"). The Company is authorized to transact variable
life insurance business.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The Company prepares its statutory financial statements, except as to form,
in accordance with accounting practices prescribed or permitted by the
Insurance Department of the State of Delaware, which are currently considered
generally accepted accounting principles (GAAP) for wholly-owned stock life
insurance subsidiaries of a mutual life insurance company. Prescribed
statutory accounting practices include a variety of publications of the
National Association of Insurance Commissioners (NAIC), as well as state laws,
regulations, and general administrative rules. Permitted accounting practices
encompass all accounting practices not so prescribed.
The Financial Accounting Standards Board (FASB) issued Interpretation No.
40, Applicability of Generally Accepted Accounting Principles to Mutual Life
Insurance and Other Enterprises, and Statement of Financial Accounting
Standards No. 120, Accounting and Reporting by Mutual Life Insurance
Enterprises and by Insurance Enterprises for Certain Long-Duration
Participating Contracts. The American Institute of Certified Public
Accountants issued Statement of Position 95-1, Accounting for Certain
Insurance Activities of Mutual Life Insurance Enterprises. Neither of these
groups has a role in establishing regulatory accounting practices. These
pronouncements will require stock life subsidiaries of a mutual life insurance
company parent to modify their financial statements in order for them to
continue to be in accordance with generally accepted accounting principles,
effective for 1996 financial statements. The manner in which policy reserves,
new business acquisition costs, asset valuations and the related tax effects
are recorded will change. Management has not determined the impact of such
changes on its financial statements.
Certain amounts from the 1993 financial statements have been reclassified to
conform with the 1994 presentation.
INVESTED ASSETS
Carrying values of bonds have been determined in accordance with methods and
values adopted by the National Association of Insurance Commissioners. Bonds
are carried primarily at amortized cost.
The Company's mortgage loans on real estate are carried at outstanding
principal balance or amortized cost. The estimated fair value of these loans
is determined using an internal matrix based on market rates and a credit
rating system. The Company establishes investment valuation reserves equal to
the amount by which the admitted value of each mortgage loan that has been
modified, is delinquent 90 days or more, or is in the process of modification,
exceeds the estimated fair value of its underlying collateral. These
investment valuation reserves are adjusted annually based on current
valuations.
Policy loans are carried at the aggregate of the unpaid balances. Policy
loans are an integral part of insurance products and have no maturity dates.
Consequently, it is not practicable to value these instruments.
Short term investments are carried principally at cost, which approximates
fair value, and include securities with a maturity date at purchase of less
than one year.
Realized gains and losses on the sales of investments are determined on the
specific identification method. See Note 3 for accounting treatment of
realized gains and losses attributable to interest rate changes. Unrealized
gains and losses are accounted for as direct increases or decreases in
surplus.
27
<PAGE>
NEW ENGLAND VARIABLE LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS--CONTINUED
SEPARATE ACCOUNT
Assets and liabilities held in the separate account are included as separate
captions on the balance sheet. The statements of operations include the
general account business and the net transfers to the separate account. The
separate account's net transfers, investment income, realized and unrealized
capital gains and losses, and investment expenses are offset by corresponding
increases or decreases in reserves required to provide for future payments to
policyholders. These assets consist principally of investments in mutual funds
and are carried at fair value.
VARIABLE LIFE RESERVES
Reserves for variable life insurance policies are developed using the 1958
and 1980 Commissioners' Standard Ordinary Mortality Tables on the Net Level
Premium Method, the Net Single Premium Method, or the Modified Full
Preliminary Term Method with assumed interest rates ranging from 4% to 5%.
DUE FROM SEPARATE ACCOUNT, NET
The Company records as a receivable amounts that are due from the separate
account for policy charges (including cost of insurance charges,
administrative charges and minimum death benefit charges), and amounts held
for policy account values in excess of the statutory reserve.
Amounts held in excess of the reserve cannot be transferred unless the
policy is terminated or the policy account value is withdrawn.
Actual transfers from the separate account to the general account for the
policy charges are made on a periodic basis to reduce this receivable. The
components of the amount due from the separate account, net as of December 31,
1994 and December 31, 1993 are as follows:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Account values in excess of reserves................ $75,718,686 $60,722,683
Policy charges...................................... 3,830,572 3,133,202
----------- -----------
Total............................................. $79,549,258 $63,855,885
=========== ===========
</TABLE>
RECOGNITION OF PREMIUM REVENUE AND RELATED EXPENSES
Variable life premium revenue is recognized during the premium paying
period. Commissions and other expenses in connection with acquiring new
business are charged to current operations as incurred.
FEDERAL INCOME TAXES
The Company's federal income tax return is consolidated with The New
England. The method of allocation between the companies is subject to a tax
sharing agreement, and allocation is based upon separate return calculations
with current credit for net losses. Net operating loss carryforwards to the
extent not previously reimbursed will be utilized as a deduction before
determining the tax liability to The New England.
3. INVESTMENT RESERVES AND INTEREST MAINTENANCE RESERVE:
The Asset Valuation Reserve (AVR) is designed to mitigate the effect of
valuation and credit-related losses on unassigned surplus. The AVR covers all
invested asset classes with risk of loss, including bonds, common stock,
mortgage loans and real estate. This balance has been classified under the
surplus caption within the balance sheet. This presentation differs from the
Company's statutory filing, however, in management's opinion, it is consistent
with industry practice which considers such reserves part of surplus.
28
<PAGE>
NEW ENGLAND VARIABLE LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS--CONTINUED
The Interest Maintenance Reserve (IMR) accumulates realized capital gains
and losses on the sale of all types of fixed income securities which result
from changes in the overall level of interest rates. These gains are amortized
into operating income over the remaining life of each investment sold. The IMR
is included in Other liabilities and amounted to $75,451 and $75,672 as of
December 31, 1994 and 1993, respectively. The amortization of the IMR into net
income net of federal income tax for 1994 and 1993, respectively, was $2,702
and $1,888.
4. INVESTMENTS:
The carrying value and estimated fair values of debt securities in the
general account are as follows:
<TABLE>
<CAPTION>
1994
GROSS UNREALIZED ESTIMATED
CARRYING ------------------ FAIR
VALUE GAINS LOSSES VALUE
-------- ----- ------ ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations
of U.S. government
corporations and agencies.............. $4,191 $ 62 $ (60) $4,193
Corporate securities.................... 3,546 125 (7) 3,664
Mortgage-backed securities.............. 92 0 (3) 89
------ -------- -------- ------
Total................................... $7,829 $ 187 $ (70) $7,946
====== ======== ======== ======
<CAPTION>
1993
GROSS UNREALIZED ESTIMATED
CARRYING ------------------ FAIR
VALUE GAINS LOSSES VALUE
-------- -------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations
of U.S. government
corporations and agencies.............. $3,727 $ 220 $ 0 $3,947
Corporate securities.................... 4,112 469 (1) 4,580
Mortgage-backed securities.............. 148 3 0 151
------ -------- -------- ------
Total................................... $7,987 $ 692 $ (1) $8,678
====== ======== ======== ======
</TABLE>
Publicly traded debt securities are valued based upon quoted market prices.
The fair values of private placement obligations are determined using an
internal matrix based on market interest rates, the credit rating of the
specific security, and public prices of similar securities.
The carrying value and estimated fair value of debt securities at December
31, 1994, by contractual maturity, are shown below. Stated maturities may
differ from contractual maturities because some borrowers may have the right
to call or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
ESTIMATED
CARRYING FAIR
VALUE VALUE
-------- ---------
(IN THOUSANDS)
<S> <C> <C>
Due in 1 year or less........................................ $ 426 $ 426
Due after 1 year through 5 years............................. 5,195 5,142
Due after 5 years through 10 years........................... 467 524
Due after 10 years........................................... 1,649 1,765
Mortgage-backed securities................................... 92 89
------ ------
Total........................................................ $7,829 $7,946
====== ======
</TABLE>
Gross realized gains from sale of debt securities were $3,817 and $44,496,
and gross realized losses were $0 and $770 in 1994 and 1993, respectively. Net
realized gains of $2,481 and $28,422 in 1994 and 1993, respectively, were
transferred to the IMR.
29
<PAGE>
NEW ENGLAND VARIABLE LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS--CONTINUED
The carrying value of the mortgage loan was $2,221,942 and $2,230,000 and
estimated fair value of the mortgage loan was $2,240,539 and $2,371,315 at
December 31, 1994 and December 31, 1993, respectively.
5. RELATED-PARTY TRANSACTIONS:
Under the terms of a service agreement, The New England furnishes all
executive, legal, clerical, and other personnel services to the Company. The
fees for such services amounted to $40,071,822 in 1994 and $29,059,452 in
1993.
All of the officers and directors of the Company are officers of The New
England.
On June 22, 1994 and June 30, 1993, The New England contributed $10,000,000
and $25,000,000 of capital to the Company, respectively.
6. FEDERAL INCOME TAXES:
Federal income taxes are provided on the basis of amounts estimated to be
payable under the Internal Revenue Code. The Company files a consolidated
federal income tax return with The New England.
Below is a reconciliation of income before federal income taxes to taxable
gain from operations:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
----------------
1994 1993
------- -------
(IN THOUSANDS)
<S> <C> <C>
Operating gain (loss) before federal income taxes............. $(4,732) $ 4,680
Deferred acquisition costs.................................... 11,035 8,660
Nontaxable income............................................. (25) (38)
Expense-related differences................................... 3,816 3,971
Other income-related differences.............................. (1,614) (2,797)
------- -------
Taxable gain from operations.................................. $ 8,480 $14,476
------- -------
Federal income taxes at 35%................................... $ 2,968 $ 5,067
======= =======
</TABLE>
The Internal Revenue Service has completed its examination of the Company's
income tax returns through 1989 and is currently examining the income tax
returns for 1990 to 1991. The New England is contesting certain issues since
1976. The outcome of these proceedings is not currently determinable but, in
the opinion of management, would not have a materially adverse effect on the
financial statements.
7. REINSURANCE:
The Company's practice on individual products is to retain not more than
$75,000 of risk on any person, excluding accidental death benefits. Total
individual life premiums ceded were $13.8 million and $9.8 million at December
31, 1994 and 1993, respectively. In 1994, $9.5 million of the $13.8 million
premiums were ceded to The New England, and in 1993, $7.6 million of the $9.8
million premiums were ceded to The New England.
The individual life insurance in force ceded was $9.7 billion and $7.0
billion at December 31, 1994 and 1993, respectively.
The Company is contingently liable with respect to ceded insurance should
any reinsurer be unable to meet the obligations assumed by it.
30
